COVER STORY 5
„ Historically, fixed income was the
instrument of choice to mitigate equity market downside. Now, it’s time for an alternative approach. Asbjørn Trolle Hansen Head of the Multi Assets Team at Nordea Asset Management
“Historically, fixed income was the instrument of choice to mitigate equity market downside,” Asbjørn Trolle Hansen, head of Nordea Asset Management’s (NAM) EUR 150bn Multi Assets Team, explains. “However, both asset classes sold off aggressively in tandem during the first half of 2022.” As equities endured the worst beginning to a year since the 1970s, fixed income encountered its first bear mar- ket in more than three decades. “The simultaneous collapse of equities and fixed-income securities at the beginning of the year made it painfully clear to us: traditional multi-asset portfolios are no longer able to protect investors to the extent they used to,” Trolle Hansen continues. “It is therefore time for an alternative approach.” A different kind of music NAM’s Multi Assets Team has long noted the limits of traditional asset class diversification. It has therefore chosen a different approach, seeking to compose portfolios on the basis of alternative risk premia. “In order to achieve diversification, we balance both cyclical and anti-cyclical return drivers from a broad and diversified set of 20-30 risk premia spread across strategy types and asset classes,” Trolle Hansen explains. The symphony thus created has repeatedly proved its worth to investors in difficult times – such as during the global financial crisis and the European sovereign debt crisis. Today, NAM offers clients three liquid alternative multi-asset strategies designed for
The play of the markets has not always been melodious over the past ten years. Rather, there have been phases with strong dissonances again and again, most notably the European sovereign wealth crisis, the ‘taper tantrum’ and the initial stages of the Covid-19 pandemic. Fortunately for investors, the drawdowns encountered proved to be temporary, and stocks and bonds quickly reached new heights. With numerous asset classes performing positively in unison since 2009, most multi-asset approaches – such as the traditional 60/40 portfolio – delivered on long-term investor return objectives. In addition, due to the largely sanguine environment during the 2010s, one of the primary characteristics of a multi-asset solution – portfolio diversification – was put to the test only infrequently. A thorough examination eventually appeared during the first half of 2022, when markets went into disar- ray following the central banks’ aggressive meas- ures to curb record inflation. Regrettably, traditional multi-asset portfolios proved to be flawed composi- tions in terms of diversification.
At a glance ` As central banks acted forcefully to fight accelerating inflation in early 2022, traditional multi-asset strategies struggled as equities and fixed income sold off aggressively in unison ` NAM’s Alpha MA liquid alternative multi-asset strategies are composed of a broad and diversified set of 20-30 risk premia spread across strategy types and asset classes ` While moderately impacted by the correlated movement at the beginning of 2022, the long-term return potential of the Alpha MA strategies remains intact 1
1 There can be no warranty that an investment objective, targeted returns and results of an investment structure is achieved. The value of your investment can go up and down, and you could lose some or all of your invested money.
ISSUE 02.2022
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