As the last few years have aptly demonstrated, pandemics, wars and wildly fluctuating economic variables such as surging inflation and sweeping interest rate hikes have all contributed to heightened periods of uncertainty and volatility in financial markets, often at the expense of patient and unassuming long-term investors. Stuart Canning, Fund Manager in M&G’s Multi Asset Team, assesses the value of Dynamic Multi-Asset allocation in a world of shifting expectations.
It is a truism that investors are always beset by uncertainty, but the post-pandemic period has brought uncertainty of a specific type: that of assessing the regime.
For the M&G Multi Asset team, the investment ‘regime’ refers to the general environment for long-term dynamics, such as inflation, policy and demographics. In today’s environment, it necessitates asking the following questions:
- ‘Is inflation high and unstable, or anchored?’;
- ‘Is there free trade between nations or are there impediments?’;
- ‘Is the environment supportive for companies to make profits, and return those profits to shareholders, or do incentives or the power of labour put a check on those forces?’
The answers to these questions have important implications for asset allocators. When the regime was one of high and rising inflation in the 1970s both equities and bonds delivered negative real returns (and often with positive short-term correlations). The notion of fixed income assets as safe havens in that period would have seemed a strange one to many.
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