Head of Asset Allocation-Canada explains the differentiators that enable advisors to outsource investment decisions and focus more on client relationships
When Jamie Robertson explained how the Manulife Investment Management multi-asset solutions team can help advisors’ clients achieve their financial goals, it’s no empty boast. More than 40-plus investment professionals around the globe manage Manulife Investment Management’s largest pool of assets, where every dollar of capital is placed where it can aim to generate the best risk-adjusted returns.
Speaking to WP, Robertson, Head of Asset Allocation-Canada and Global Head of Tactical Asset Allocation, Multi-Asset Solutions Team, highlighted three differentiators that catch the eye of advisors looking to outsource investment decisions. Firstly, the Manulife Asset Allocation Portfolios, (managed by the Manulife Investment Management multi-asset solution team), invest in funds from established Manulife Investment Management’s equity and fixed-income managers to generate alpha over a market cycle. Secondly, they also use Dimensional Funds Advisors’ smart beta ETFs, which tilt towards cheaper, more profitable companies. The third part of the jigsaw is the opportunistic portion of the portfolios, which helps to elevates returns and softens the impact of drawdowns.
This ability also means a faster recovery when markets recover. For example, in 2020, the Manulife Growth Portfolio (one of the asset allocation portfolios managed by the Manulife Investment Management multi-asset solutions team), which aims to produce equity-like returns with lower volatility, was down only 60% of the market. The bounce back was, therefore, quicker, smoother and clients achieved their objectives.
From an advisor’s perspective, ensuring clients and families stick to their long-term goals and stay invested is hard work when you factor in market fluctuations and panic-stricken phone calls. Manulife Investment Management’s expertise, Robertson said, allows them to outsource their asset allocation and manager selection decisions.
“It allows them to rebalance these portfolios automatically,” he added. “Think of these big market moves; you're an advisor with 100 clients, how do you go through and rebalance 100 portfolios? If you've got your clients in an asset-allocation solution, these are rebalanced daily.
“When markets move a lot, we’ll actually go in and rebalance those portfolios for them. So, you get constant ongoing monitoring of the portfolios to ensure that they are aligned to people’s long-term risk appetite.”
Rebalancing process
Manulife Asset Allocation Portfolios are rebalanced daily with cash flows. On any given day, those flows will go to the asset class that’s underweight to where the team wants it to be.
In March 2020, when equities were in steep decline, and bond prices were advancing, Robertson knew from his daily analysis that the portfolios were increasingly underweight equities. It prompted a “hard rebalance”; fixed income was sold, and equities bought when cheap.
Robertson said: “When you think about what happened from March, 2020, to today, that 2% we allocated to equities instead of fixed income, it's doubled. Over time, that has a very meaningful impact on the outcomes we're trying to achieve for our investors.”
The way ahead
Holding a position in gold in the opportunistic portion of the Manulife Growth Portfolio played a crucial role in its strong recovery, making sure the drawdown was shallow. At the beginning of 2021, after equity markets had stormed back, the team’s outlook was that equities remained more attractive than fixed income – and that stance is unchanged, with interest rates and equities about where Manulife Investment Management expected.
Now the reopening trade has run its course, Robertson expects a reversion to pre-pandemic conditions as supply chains and economies normalize. He believes economic data will now moderate because of both the base effect and a simmering down of the heightened activity in the economy. He also anticipates above-average returns, albeit with question marks lingering over the Fed’s tapering schedule.
The multi-asset solutions team’s next fixed-income dollar will gravitate towards shorter duration credit products, while on the equity side, Robertson is bullish on Canada. He explained: “Canada is ideally positioned to take advantage of moving into this expansion phase. Our index has got a lot of energy, materials, and it’s got a very attractive financial sector.
“We've started to see some foreign interest in the Canadian market; it's a lot cheaper than the U.S. and our expected returns for the Canadian market are more than double. As a result, Canadian equities are a very attractive place to be.”
Opportunistic element
The opportunistic portion of the portfolio, which has a three to 18-month time horizon, gives the team an edge, according to Robertson. Its four-pillar approach takes into consideration: the overall global macro environment; the fundamental backdrop across asset classes; valuation and growth potential; and sentiment.
He explained: “We're trying to make sure that we're not buying the most popular, overbought, overexposed, most expensive asset classes. That’s the process by which we hunt for value.”
If he believes the risk reward is tipped more towards risk, the portfolio will become more defensive, as shown by its exposure to gold through 2019-2020. If the team identifies compelling sectors or countries to allocate capital, they will also make a move. In the last six months, for example, energy has seen large gains in a short period of time. The multi-asset solutions team were able to identify this and take profits.
A longer-running thesis has been financials. Robertson explained: “We initially got into our established financial exposure opportunistic sleeve over a year ago and we added to it earlier this year as well. There was a combination of a very sound global macro backdrop and very attractive fundamentals. People were very negative on the sector and when it started to show some good trend indicators, we started to invest in it. That’s been a very good outperformer and, going forward, we would expect the move in financials is not quite over.”
Sponsored by Manulife Investment Management, as of June 2021.
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