By John Ventre, Portfolio Manager, multi asset portfolios, Skandia Investment Group
Successful investors tend to be able to minimise losses when they are wrong and extract full value when they are right.
Back in Q3/Q4 of last year, I felt that high yield bonds and European and Chinese equities offered a margin of safety that more than justified the risks to growth of European sovereign woes or a China hard landing.
Fast forward 6 months and things are starting to change. High yield bonds, particularly those in the US, no longer offer the same potential for return. In contrast, European and Chinese equities have retraced only half of their declines and G3 government bond yields remain near all time lows.
There is some economic momentum building and QE and LTROs make money cheap and risk attractive. It's no longer just a value argument as it was 6 months ago: there is now a more rounded case for a pro-risk stance in portfolios. Of course, we could be wrong so, as investors, our portfolio positions should have the best risk / reward ratios. Of the three most straightforward ways to have a pro-risk stance in portfolios - overweight high yield, overweight equities, and underweight government bonds - it's the latter two which now have the most attractive payoffs.
So if you've been in risk-on mode, like I have, it seems time to start harvesting profits from high yield. But whether you've been risk-on or not, being overweight equities (particularly Chinese and European ones) and having an underweight stance in government bond duration, look to be the best ways of achieving performance going forward.
Skandia Investment Group:
Skandia Investment Group (SIG) is an investment management business within the Long Term Savings division of Old Mutual group. It was created in 2007 in order to concentrate investment management resources to operate on a global scale.
SIG distributes internally across Skandia and Old Mutual's business units as well as externally to wealth managers, private banks, pension schemes and family offices in over 20 countries across five continents. It is supported by around 120 staff who assist in the management of proprietary assets under management of £14.3bn.*
SIG offers a range of multi manager portfolios and single manager funds through a distinctive business model whereby all the underlying assets are invested primarily through mandates awarded to third party managers. SIG has developed expertise in managing these portfolios and running these funds, while exploiting the investment strategies of some of the world's best fund managers.
SIG has therefore honed its skills as a selector, manager and blender of investment strategies. This has given its in-house portfolio managers the ability to power a range of investment fund solutions which have been uniquely tailored to meet the evolving requirements of modern day distributors and their customers.
As a ‘manager of managers,' SIG chooses its ‘sub advisers' using a rigorous research process using quantitative and qualitative analysis. SIG's in-house analysts spend more than 6,000 hours of investment manager meetings per year. Once investment managers are chosen to run SIG's mandates - the largest being some circa £135m - their performance is closely monitored against stated objectives and they are held to account for their investment decisions.
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