Best Asset Allocation and Strategy Paper 2020

Robeco wins Best Asset Allocation and Strategy Paper 2020

This year, the coronavirus pandemic has been a major test for global investors. In March, the VIX hit 75.9, highlighting the tremendous levels of stress within the market. The winning paper in this category – by Robeco – looks ahead to what the next five years could hold. Its expected return forecasts helpfully examine the outlook for the global economy and various asset classes. But while forward-looking analysis is essential for asset allocators, it’s also vitally important not to lose sight of past market behaviour as well as the basic tenets of asset allocation theory.

WINNING PAPER: ROBECO

5-year Expected Returns 2021-2025: Brave real world (Robeco, Sep 2020)

The coronavirus pandemic has changed the world; it’s hard to dispute that fact. The coming five years present investors with some major challenges as they navigate decisions around fund allocation to different asset classes and the management of portfolio risk. This 109-page report by Robeco provides helpful insights and data on the investment outlook, the economic outlook, and a discussion on five key topics that are defining our times.

HIGHLY COMMENDED PAPERS

Stocks, Bonds, Bills, and Inflation? (SBBI?): 2020 summary edition (CFA Institute Research Foundation)

This document by CFA Institute Research Foundation is a magisterial work. It provides detailed and helpful data on past US stocks and bonds. It records, among other things, the historical performance of US equities, inflation, index values, and the US dollar. It also demonstrates how readers (i.e. CFA charterholders) can calculate and interpret the data. The document is a quick but insightful way of understanding the major asset classes, how returns are calculated, and the long-run perspective.

2021 Long-Term Capital Market Assumptions (Invesco, 2020)

The start of 2021 feels like we’re about to ascend a mountain, according to Invesco strategists. In this comprehensive long-term capital market assumptions document, they model long-term asset behaviour for 2021 and beyond. Due to central bank stimuli, developments in medical technology and rapid changes in the global economy, they expect this to be a rapid, steep grade when compared to the post-GFC recovery.

Liquidity Trends in the Wake of Covid-19: Implications for portfolio construction (Amundi, 2020)

In March 2020, the coronavirus pandemic announced its arrival on the world stage with intense market turmoil and a severe liquidity crisis. Unlike the financial crisis of 2008, it had an immediate impact on the real-world economy causing negative growth over the subsequent months. This 18-page paper by Amundi delves into some of the implications for portfolio construction. It also draws out some key lessons for investors.

Managing Multi-Asset Portfolios in Turbulent Market Environments (American Century, 2020)

The market volatility of recent months has forced many fund managers to rebalance their portfolios to better manage portfolio risk. In this 11-page paper by American Century Investments, the authors argue that portfolio rebalancing is an unappreciated part of multi-asset portfolio management. To help investors better manage their portfolios in future, they revisit some of the basic principles of the practice.

What to Expect after the Great Pandemic of 2020 (BNP Paribas AM, Jul 2020)

The fast-spreading coronavirus pandemic led to one of the biggest capital markets shocks the world has ever seen. This 40-page report by BNP Paribas AM examines where it left markets over the subsequent months. It also considers the response of policymakers around the world. The latter part of the report provides detailed forecasts for expected market returns over the next five to seven years.

Capital Market Assumptions — Five Year Outlook 2021 Edition (Northern Trust AM)

Northern Trust’s latest five-year outlook examines six themes which the firm’s strategists believe will dominate the world economy and markets over the next half decade. They are: climate risk, the future of capitalism, inflation, how to re-tool global growth, Modern Monetary Theory, and US-China relations. These themes provide unique lenses through which the paper’s multi-asset return expectations analysis is conducted.

ABOUT THE AUTHOR

Andrew Perrins is a former Actuary and Asset Allocator. After qualifying as an Actuary, he worked for 15 years in investment management, serving as Director of Asset Allocation for Abbey Life and for Chase Manhattan, before setting out on a more entrepreneurial path.

To contact him, email [email protected]