10 Nov 2011
Comment: Morten Spenner, CEO at International Asset Management Limited
There will inevitably be twists and turns in the markets from the decisions and events that take place in Europe which are likely to lead to continuing volatility in markets and ongoing “risk on / risk off“ investor behaviour. Allocations should thus be balanced between retaining exposures to opportunistic managers who are ready to capture movements while ensuring portfolios are also well positioned to preserve capital.
We believe that there is merit in having an increased weighting to the Macro and Trend Followers/CTAs strategies. Most Macro managers remain bearishly positioned and Trend Followers/CTAs are currently predominantly long of bonds and short of equities. Trend Followers/CTAs are liquid enough to switch quickly if better opportunities are presented and more clarity on the outlook becomes evident. Fixed Income Relative Value managers are expected to continue to produce returns in line with historical norms while exhibiting low levels of volatility.
We would suggest that the potential for producing returns is improving for Credit managers following the recent widening in spreads. However, in the medium-term, there may be better timing opportunities in the future to add to allocations in the Credit strategy. In the Long/Short Equity area, there will need to be more focus within the strategy on where managers can add value from better opportunity sets. In an environment of reduced growth in the Western world, there is likely to be less potential upside from the equity markets of these countries in the short-term.
In conclusion, we feel that the current market environment probably favours the return outlook of debt-related managers but we retain a positive return outlook on the Long/Short Equity and Event Driven strategies for the potential to produce higher returns in more favourable conditions over the longer-term. However, manager selection is likely to be a crucial driver of returns in the current market environment and therefore these strategy outlooks need to be balanced with the focus that IAM has on approved managers within strategies, on themes and on the managers that we have most conviction in.
There will inevitably be twists and turns in the markets from the decisions and events that take place in Europe which are likely to lead to continuing volatility in markets and ongoing “risk on / risk off“ investor behaviour. Allocations should thus be balanced between retaining exposures to opportunistic managers who are ready to capture movements while ensuring portfolios are also well positioned to preserve capital.
We believe that there is merit in having an increased weighting to the Macro and Trend Followers/CTAs strategies. Most Macro managers remain bearishly positioned and Trend Followers/CTAs are currently predominantly long of bonds and short of equities. Trend Followers/CTAs are liquid enough to switch quickly if better opportunities are presented and more clarity on the outlook becomes evident. Fixed Income Relative Value managers are expected to continue to produce returns in line with historical norms while exhibiting low levels of volatility.
We would suggest that the potential for producing returns is improving for Credit managers following the recent widening in spreads. However, in the medium-term, there may be better timing opportunities in the future to add to allocations in the Credit strategy. In the Long/Short Equity area, there will need to be more focus within the strategy on where managers can add value from better opportunity sets. In an environment of reduced growth in the Western world, there is likely to be less potential upside from the equity markets of these countries in the short-term.
In conclusion, we feel that the current market environment probably favours the return outlook of debt-related managers but we retain a positive return outlook on the Long/Short Equity and Event Driven strategies for the potential to produce higher returns in more favourable conditions over the longer-term. However, manager selection is likely to be a crucial driver of returns in the current market environment and therefore these strategy outlooks need to be balanced with the focus that IAM has on approved managers within strategies, on themes and on the managers that we have most conviction in.
