Recovery playbook: Six multi-asset strategies to ride post-pandemic volatility

By Vincent Ropers, co-portfolio manager of the TB Wise Multi-Asset Growth Fund

As we move out of economic recovery mode, multi-asset investors face a more volatile outlook. This was starkly underlined last week when all major Wall Street bank strategists turned bearish. There is a growing consensus that this bull market might run aground.

There is, to an extent, good reason for this shift in sentiment. By most measures, headline stock market valuations could be argued to be in the extreme. Meanwhile, flows into equities continue at record pace, leaving little room for error.

Moreover, a pull-back after market exuberance is nothing new – and, indeed, often deemed healthy. For example, since 1928, the S&P 500 has had a drawdown of 10% or more on 54 occasions, or about once every 1.7 years. Central banks are, so far, successfully managing to support the economy while preventing it from overheating. Yet as sentiment grows more fragile, the room for error is shrinking and investors could well lose their nerve as the year comes to an end.

But, as all good long-term investors know, it is time in the market that counts not timing the market. History shows us that rebalancing portfolios is a superior strategy than trying to forecast market crashes. We believe there remain many areas of attractive value within global markets for active asset allocators. Moreover, any volatility could provide an opportunity to broaden exposure.

10-year Asset Allocation, TB Wise Multi Asset Growth Fund:

Against this uncertain backdrop, we highlight six tactical allocation strategies that can help multi-asset investors safely plot a course though the post-recovery period.

Recycle the winners

With the current cycle advancing, the indices may look stretched, but this doesn’t mean everything is overvalued. In this environment, it is all about tactically shifting exposures or trimming positions to lock-in gains and unearth new opportunities.

We have been recycling the winners between our outperformers and using proceeds to invest in areas that still show significant upside and look quite undervalued. For example, on the back of strong performance we trimmed some of our UK equity names, including JO Hambro UK Equity Income and Polar UK Value Opportunities.

We used those profits to increase some of our more defensive growth names, where we can capitalise on structural, as opposed to cyclical, growth. These include funds such as Henderson EuroTrust and International Biotechnology Trust. We have also added to underrated infrastructure plays such GCP Infrastructure which taps into long-term structural trends, and displays more defensive characteristics than equities, as well as being an inflationary hedge.

Harness value opportunities

In the value space, although we have taken profits in the UK, we added to our position in the Polar Capital Global Financials Trust. We like the global remit of the strategy and its focus on a key sector for the recovery, which remains out-of-favour with investors.

Being a pure financials trust, the managers are also able to access opportunities in niche areas such as emerging markets financials or financial technology companies, which provide the trust with interesting growth potential as opposed to being simply a value play.

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