{"id":46733,"date":"2015-11-25T00:05:00","date_gmt":"2015-11-24T23:05:00","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/multi-asset-strategies-offer-an-alternative-in-liquidity-driven-markets\/"},"modified":"2015-11-25T00:05:00","modified_gmt":"2015-11-24T23:05:00","slug":"multi-asset-strategies-offer-an-alternative-in-liquidity-driven-markets","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/multi-asset-strategies-offer-an-alternative-in-liquidity-driven-markets\/","title":{"rendered":"Multi-asset strategies offer an alternative in liquidity driven markets"},"content":{"rendered":"

Different from positioning based on stages in the business or credit cycle or general \u201crisk-on\/risk-off\u201d swings, the
\nliquidity trade creates a backdrop where both risky and safe assets perform well. Basically it causes all assets that
\nhave a claim of future cash flows to perform well. The latter can be either coupon or dividend payments that cause
\nan asset owner to outperform cash over time.
\nThis means that generally safe categories (government bonds), yield
\nplays (credit and real estate) and growth assets (equities) all do well once the liquidity trade is in play.<\/quote><\/p>\n

One could argue that ever since markets became convinced that the European Central Bank and the Bank of Japan
\nwould join the Federal Reserve in its willingness to \u201cdo whatever it takes\u201d with its liquidity ammunition to reflate
\nthe economic system, the liquidity trade has been one of the most dominant forces in financial markets.<\/strong> Ever since
\nMario Draghi made his famous speech on 26 July 2012 on potential ECB action to support the euro, and in late
\n2012 the political and policy regime shift in Japan took place after Shinzo Abe\u2019s election victory, it was clear that
\nthe three largest central banks in the world were willing to fire on all liquidity cylinders to fight off global deflation
\nrisks. Both equities and real estate floated up more than a cumulative 50% since this liquidity wave started rolling,
\nwhile German Bunds have risen a little less than 20%.<\/p>\n

The above shows that investing in multiple asset classes can reap attractive returns. However, government bond
\nyields are expected to remain low for the foreseeable future and hence offer little return potential. The liquidity
\ntrade is thus expected to remain a dominant force.<\/quote>
\n Although the Fed could start to hike rates in December already,
\nit is widely expected that the path of rate hikes will remain very shallow. ECB President Draghi has hinted on an
\nextension of its Quantitative Easing program in December, while also the BoJ is expected to ease further.<\/p>\n

The low bond yields have left traditionally conservative investors with limited options where to invest. For example,
\nlarge institutional investors such as pension funds, which traditionally invest a relatively large part of their
\nportfolios in government bonds, are forced to search for higher yielding alternatives given their actuarial targets.<\/strong>
\nOne can argue that the group of conservative investors will only increase given factors such as demographic
\nchanges, stricter regulations and the collective memory of the 2008 financial crisis which has reduced the ability
\nand\/or willingness of previously more risk-seeking investors to take risk.<\/p>\n

Flexible multi-asset strategies offer traditional bond investors an alternative by providing access to a wider set of
\nreturn opportunities while limiting the overall portfolio risk.<\/quote>
\n Investors with moderate risk profiles would therefore
\nbe better off if they switch a part of the interest rate risk in their bond portfolios into better-rewarded risk-taking
\nin other asset classes, without increasing the overall portfolio risk.<\/strong> Multi-Asset funds aim to provide attractive
\nreturns while running a risk level comparable to that of a diversified bond fund.<\/p>\n","protected":false},"excerpt":{"rendered":"

One of the key reasons which makes multi-asset investing attractive are the generally low yields. As a
\nresult of the global financial crisis, central banks around the world have lowered their key interest
\nrates and engaged in unconventional easing measures. In this environment, many investors have put
\non some sort of a \u201cliquidity trade\u201d that tries to exploit the impact that abundant liquidity will have on
\nfuture asset class returns. <\/p>\n","protected":false},"author":1,"featured_media":46731,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1809,1655,1657,1651,1807,1650,2068],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/46733"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=46733"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/46733\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/46731"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=46733"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=46733"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=46733"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}