With Rate Hikes Looming, Multiasset Managers Need to Be Agile

For most of the past five years of investing in multiasset strategies, there has been a bull market for equities and bonds. Developed markets have outperformed emerging ones; ditto for the U.S. dollar versus other major currencies.

The extraordinary actions taken by central banks during and after the 2008–’09 financial crisis have helped drive much of this performance. Certainly, low interest rates have helped keep the economic engine humming. We at Baring Asset Management have seen a great deal of research over the past few months that suggests investors believe they have been lured into risk assets by central banks’ negative real riskless rates. This in turn has led to a general disbelief that current equity valuations are based on fundamental factors. Almost every market looks expensive, and bond yields are at historic lows, in part as a result of these extreme monetary policies. Equities are similarly expensive, especially considering the present optimistic expectations for earnings for the next few years.

一个关键event on the horizon is theFederal Reserve’s first rate increase，预计在年底前发生。美联储正在进行汇率标准化的事实，与英格兰央行预期，并没有帮助股票方面。我们的十年预测基于人口统计，生产力，盈利能力和其他因素，都显示出贫血回报。我们对美国股票的最新成年预测是在未来十年内返回3.5％。这种特别静音的预测不鼓励。

In such a challenging market environment, global tactical asset allocation managers offer two very basic services: diversification and timing.

关于多样化，目前在传统上提供非相关回报的资产的机会很少，如债券，commoditiesand property. Of these,property has the best current valuation，但上升的利率可能会影响所有这些资产课程。虽然我们预计股票市场能够承受最初的利率徒步旅行，但我们不能排除美联储在曲线后面的可能性inflation，特别是我们最近看到的积极工资压力的一些迹象。因此，我们预计高产债务，财产real estate investment trusts— and, to an extent, commodities to continue to be correlated to the risk of equities.

With regard to timing, we are more aggressive than most other multiasset managers about cutting exposure to equity risk when we perceive the market to be vulnerable. Since the past five years have seen a global bull market, we have not had a significant opportunity or need to cut risk in the U.S. product; however, we would anticipate the need to significantly cut risk in the next few years. Safe places to invest will be difficult to find.

Foreign exchange has also become much more crucial over the past five years. In a world full of so-calledfinancial repression, it is not surprising to see national authorities treat their currencies with benign neglect at best — and a race to the bottom at worst. As a competitive tool, currencies provide not only returns to investors but also a medium for nondomestic earnings, thus affecting earnings expectations. The U.S. dollar’s recent strength is likely to persist, and therefore we would continue to use hedged non-U.S. markets as an opportunity for return and diversification.

The true test for multiasset allocation strategies will be as rates rise and central banks try to guide the world back to a more normal level of interest rates. There will likely be volatility and bumps along the way. Only investors who can dynamically allocate among different sources of beta will perform.

Hayes Miller is head of North American multiasset, and Matthew Whitbread is an investment manager; both on the Global Dynamic Asset Allocation strategy at霸菱资产管理in Boston.