MARKETS & INVESTING
Given these divergences , having the flexibility to move exposure within different sectors or regions is a key advantage for multi-asset investors aiming to generate long-term returns . In our Multi Asset Open range we have this flexibility to tilt exposures in response to prevailing market conditions in the best interest of investors .
Fixed income plays an important diversifying role One of the primary reasons for holding investment grade bonds in a multi-asset portfolio is to counter equity market volatility . Investment grade bonds are part of the strategic asset allocation ( SAA ) for our Multi Asset Allocator range . Elsewhere , in our Open range , we maintain a bias towards investment grade bonds given economic headwinds and higher funding costs . During inflationary periods , there is also a case for expanding the range of fixed income assets , as higher riskfree rates make bonds more attractive compared to risky assets . However , the timing of entry is extremely important .
Adding to duration assets ( like US treasuries , UK gilts , etc ) before the rate hike cycle could result in a loss due to an inverse relationship between bond yields and price . On the other hand , adding to such assets when the interest rates have peaked should be rewarding . In the Open funds , we have been actively managing our exposure to Government bonds to generate long-term returns for our clients .
Alternatives , real assets and REITs can also hold up well in inflationary periods Looking beyond equity and fixed income markets , assets such as listed alternatives , real assets and REITs tend to hold value during prevalent inflation . For example , in REITs , as prices rise so do property values and rents , increasing the amount of rental income earned along with the value of property . While the specific dynamics of individual alternative asset classes will vary , this broad asset class plays an important diversification and return role in both our Open and Allocator funds . Within the Open range , where we invest in a range of listed alternatives and REITs , we remain focussed on listed strategies with the most contractual correlation to inflation and best liquidity , and where spreads between return and sovereign yields is strongest . This low sensitivity to GDP should also provide a degree of relative stability during a recession . In the Allocator range , we hold REITs as part of the funds ’ long-term exposure .
Precious metals and commodities can be another important tactical exposure Meanwhile , asset classes such as commodities tend to fare better during prolonged , multi-cycle periods of elevated inflation and , as a result , can provide a reliable source of return . However , the significant cyclical swings during such periods mean that this exposure needs to be manged carefully . These assets are highly heterogenous and behave differently to equity and fixed income , but they can be important tools for active managers with the flexibility to allocate to commodities across the investment cycle . We actively manage the exposure to commodities in Open funds via positions in diversified commodities instruments and physical gold . On the other hand , this asset class is not included in the SAA of Allocator funds , since we believe commodities are more effective as a tactical ( rather than structural ) exposure in longterm portfolios .
Has high inflation had a more lasting impact on our investment approach ? It ’ s no secret that the change in inflationary backdrop over recent years has had a significant impact on markets . Many investors are understandably reviewing their asset allocation as well as their longterm goals in the context of structurally higher inflation . However , the fundamental principles of multi-asset investment strategies remain intact , based on the importance of providing risk diversification and downside protection . The central tenet of multi-asset investing is about spreading risk : avoiding putting all your eggs into one basket . This approach allows investors to mitigate both macroeconomic and market risks , generating long-term returns in the context of an ever-changing investment landscape . The arrival of a new higher inflation regime by itself does not change our approach to investing , namely maintaining a diversified approach by asset class and individual investment .
If you would like any more information about the Fidelity Multi Asset solutions mentioned in this article , please contact salessupport @ fidelity . com or call 0800 368 1732 .
Important information This information is for investment professionals only and should not be relied upon by private investors . Past performance is not a reliable indicator of future returns . Investors should note that the views expressed may no longer be current and may have already been acted upon . Changes in currency exchange rates may affect the value of investments in overseas markets . Investments in emerging markets may be more volatile than other more developed markets . Fidelity ’ s Multi Asset funds can use financial derivative instruments for investment purposes , which may expose them to a higher degree of risk and can cause investments to experience larger than average price fluctuations . The value of bonds is influenced by movements in interest rates and bond yields . If interest rates and so bond yields rise , bond prices tend to fall , and vice versa . The price of bonds with a longer lifetime until maturity is generally more sensitive to interest rate movements than those with a shorter lifetime to maturity . The risk of default is based on the issuer ’ s ability to make interest payments and to repay the loan at maturity . Default risk may therefore vary between government issuers as well as between different corporate issuers . Due to the greater possibility of default , an investment in a corporate bond is generally less secure than an investment in government bonds . Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only . Issued by Financial Administration Services Limited and FIL Pensions Management , authorised and regulated by the Financial Conduct Authority . Fidelity , Fidelity International , the Fidelity International logo and F symbol are trademarks of FIL Limited .
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