Why investors are embracing multi-asset bond strategies

A portfolio manager explains why the strategies are growing in popularity among Canadian investors

Why investors are embracing multi-asset bond strategies

Getting access to multi-asset bond strategies within a fund structure is becoming increasingly important for Canadian investors.

That’s the inion of Blair Reid, a portfolio manager at BlueBay Asset Management and lead manager of the actively managed RBC BlueBay Global Diversified Income ETF.

“One obvious benefit is that investors get a packaged solution; they get access to a lot of different parts of the credit market in one place,” Reid said. “Not having to do the governance or selecting of individual parts is certainly attractive for investors.”

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As well as the packaging aspect, investors are also paying for an active asset allocation approach across a number of markets. “A good manager will very much be rotating between those asset classes,” Reid said. “Ultimately, they should be delivering a superior level of yield or overall return relative to the volatility or underlying credit risk.”

Going it alone in the bond market is a strategy that many investors do follow, but it does come with its pitfalls. A multi-asset approach enables investors to avoid the type of fixed allocation strategy that is difficult to exit when parts of the market become less attractive. Reid has seen multi-asset strategies become increasingly popular among investors.

“It is investors outsourcing the asset allocation decisions and being able to access parts of the market they wouldn’t on a standalone basis,” he said. “Financial capital bonds - or CoCos - are something we have put into our multi-asset strategies, and people tend to buy less of those in standalone portfolios.”

“We also invest in all the different types of flavours of the emerging markets, and again, that is something a lot of investors don’t add individually. They might add one of the flavours but not all of them when managing their own asset allocation.”

Reid has created what he calls an “opportunistic bucket” in some of his multi-asset strategies, a strategy which has included holding Greek and Catalonian bonds over the past three months. Those moves have been “absolutely fantastic,” Reid said.

As well giving investors access to a broader set of ideas and options, a multi-asset strategy also provides something that every investor is looking for: future proofing of their investments. “No manager can ever promise that a Lehmann Brothers type event is not going to happen tomorrow, and if a credit manager has done their job properly it won’t stop the mark-to-market,” Reid said. “The fund might still drop 15% but as long as the bond doesn’t default it will claw its way back and investors will get their money back.”

“It comes back to doing good underlying credit research and being very clear with investors. The daily jumps in the markets are not something we can do something about, but what we can do is find bonds that really do have superior credit risk, which, even in very difficult times, will be able to meet the contractual payments and give the investor their money back.”

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