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SIMON BROWN: I’m chatting with Marius Oberholzer. He is head of Multi-Asset Investments at Stanlib. Marius, appreciate the time. You and I have chatted before today. I want to look more at the theoretical concept of multi-asset. Truthfully, I and probably most of my listeners who have our own private portfolios [have] in essence multi-asset portfolios.
My first question to you is, is multi-asset as simple as equity and bonds, or does it get wider these days? There might be limitations if you’re looking at a CIS [collective investment scheme] fund, but is it sort of wider than just equity and bonds?
MARIUS OBERHOLZER: Hi, Simon. It absolutely, I think, is wider than just equity and bonds. And I think historically equity and bonds have worked quite well, both from a return perspective as well as a diversification perspective. But one of the things that we’ve been talking about for a number of years now is what happens when bonds and equities are correlated? And that’s where I think multi-asset or simple bonds and equity portfolios sometimes fail – in the short run, anyway. And that’s where you need to widen your net around diversification and find other things to help drive returns, and to help diversify your portfolio more appropriately.
So I think in a world where we’ve seen correlations being very high across asset classes, investors do need to think a little more differently around the construction of portfolios – not that bonds and equities and cash is the wrong thing; it’s just that it won’t always give you the return profile you think you need. It could be over a three- to five-year period of time that you just don’t get diversification.
If you recall, one of the central tenets of our investment philosophy is that all assets are risk assets. If you have that in mind, maybe it’s not a bad thing to think about more equity than traditionally would be the case, or more bonds than traditionally would be the case.
But our view would be that multi-asset does require a much wider suite of asset classes and, importantly, the way you express those asset-class views.
SIMON BROWN: Absolutely. I really like [that] – and you said it to me before – all assets are risk assets at the end of the day. When you are looking, maybe on day one you’ve got a fund, you are setting up sort of the allocations. Is that where you start, where you decide, well okay, we want X amount in equity bonds, maybe some in alternatives, perhaps some into cash? Is there a thinking of course back to the classic sort of 60:40? Is that the first port of call or is there more complexity to deciding those ratings?
MARIUS OBERHOLZER: I think sadly finance is mired in kind of complexity a little. But if you forgive me, just stepping back a little bit and giving an old framework – it all depends on what the investor is trying to achieve. Are they trying to achieve the highest possible return? Are they trying to achieve the highest possible return per unit of risk? Those are two very different things. Are they trying to achieve maximum diversification? Are they trying to achieve a targeted volatility for a portfolio? I could keep building on that story.
But I think in South Africa, as we look at unitised or collective investment schemes, unit trusts – and forgive me if I then go back to the safety of that – I think the stand for us would be that in a high equity multi-asset portfolio we realise that clients are wanting equity growth in their portfolio. They are looking for capital appreciation, they’re not looking for too much safety, they’re not looking for an absolute-return profile. They want equity returns or long-term growth.
But they’ve asked us to build a portfolio of high equity multi assets, and that means that we are going to run in the range of 60-75% equity, because that’s what the regulations force us to do.
In a world where we are completely unconstrained, Simon, I’d approach it very differently. Again, where am I approaching it from – the return per unit of risk? In that case, I would go much wider than just the bond/equity component. I would start thinking about all sorts of other things like leverage, commodities which we can’t utilise in Reg 28 portfolios, and really try and build that diversified asset-based strategy, et cetera.
But it would start with this, let’s call it the mid point of that 75-60% equity as saying, okay, well now what is correlated? Are bonds safe? Are they offering us value? What time horizon are we happy to look out to? How big is valuation in our world? In our world valuation is just one way of looking at the world. We want to look at other things, and we build up our asset-class views based on that.
And then we would pivot quite aggressively around how we think the world is evolving – which is very different from, for instance, the way you might manage your money, in which you’re happy to have a fire and forget; let’s call it, a 60/40 portfolio.
In our world – and we are sitting in front of our computers, we are watching markets, we are watching news flow, we are watching the evolution of earnings, of volatility, of multiple geographies – and therefore we can adjust our tilts accordingly to being more pro-equity, more pro-bonds, a geographic focus, factor focus. All of those sorts of things would start coming into our viewpoints.
So again, I started off by saying it depends how you express that view as well. That becomes a differentiator.
Hopefully that gives you some insight into the thought process.
SIMON BROWN: I get it a hundred percent. You’ve kind of moved on to my next question, which was how much is it about value? What you’re saying is that certainly value does matter. In other words, if equities are crazy expensive, you’re going to be at the low end of the range rather than at the high end. So there is that consideration as well. And to your point, it’s more than just value – but that’s an easy one to pin a tail onto.
MARIUS OBERHOLZER: Well, sometimes. And again, forgive me now for doing that, but it depends. Value’s in the eyes of the beholder, right? My definition of value is going to be different from some of the other asset managers out there. In fact, it’s different even within our own home of Stanlib, because [your] view of valuation is different from mine, for instance.
So I think if it was as simple as saying this asset is cheaper, this asset is expensive; we wouldn’t need analysts to uncover the hidden gems and the differentiated viewpoint that makes markets. therefore value is in the eye of the holder.
For us, valuations absolutely matter. But in the short run we still need to deliver returns on a one-year, three- to five-year basis. So assets can stay incredibly cheap for a long period of time, and we need to make sure that we’re delivering returns for our clients – otherwise they can do it themselves on a 60:40 or in a 50:50 type monthly assets approach.
SIMON BROWN: I’m going to leave it there. But what you also remind me is the complexities of managing other people’s money as opposed to my own little portfolio.
Marius Oberholzer, head of Multi-Asset Investment at Stanlib, I always appreciate the insights.
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