The ruthlessness with which investors now need to assess forward risk and return outlooks for all asset classes could mean a move away from conventional SAA to a more flexible approach which may exclude some assets of sub-asset classes in part or completely. What makes the cut and which assets are dispensable in this new world?
Angela Ashton, director, Evergreen Consultants
Andrew Fisher, head of asset allocation, Sunsuper
James Kingston, director, head of portfolio analysis & solutions APAC, Blackrock
MODERATOR: Laurence Parker-Brown, Content producer, Conexus Financial
- Traditional fixed income sleeves will take an entirely different shape in the post-pandemic era, with the allocation of negative bond yields and cash investments hard to justify in portfolios according to Sunsuper head of asset allocation Andrew Fisher.
- Fisher explained how the fund’s allocation to fixed income is set to change as the economy drags itself out of a recession and markets tilt themselves back to a more rational setting.
- The depressed state of sovereign bond returns, especially, is forcing institutional investors to reimagine their defensive strategy.
- Liquidity will be “everywhere” coming out of the recessionary pandemic environment, Fishers says, and central banks will continue to make cash uncomfortable to hold.
- Bonds are still on the table for Sunsuper, he explained, but the fund will be looking outside the box next year. That means scouring for emerging market and high yield sovereign bonds that are “a little closer to investment grade”.
- Ashton agreed that the post-pandemic investment landscape will offer an entirely different vista. Even as we come out of a recession, she explained, irrational exuberance will be curtailed.
Is it time to reduce allocations towards sovereign bonds?
- Yes - already underway
- Possibly - waiting for viable alternatives to prove themselves
- No - they still have a valuable role to play