As recession fears mount and fundamentals wane, multi-asset funds take cautious stance

Goola Warden
Goola Warden9/20/2019 06:30 AM GMT+08  • 8 min read
As recession fears mount and fundamentals wane, multi-asset funds take cautious stance
SINGAPORE (Sept 23): The fourth quarter of last year was a challenging time for many multi--asset funds. Trade relations between the US and China soured further, and additional tariffs were imposed. At the same time, the US yield curve inverted for the fi
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SINGAPORE (Sept 23): The fourth quarter of last year was a challenging time for many multi--asset funds. Trade relations between the US and China soured further, and additional tariffs were imposed. At the same time, the US yield curve inverted for the first time since the eruption of the global financial crisis (GFC) in 2008, sparking fears of a recession. The combination of these factors led to a rare worldwide plunge in the prices of most major asset classes.

Under “normal” circumstances, a multi-asset fund should in theory have been able to mitigate losses through a diversification of asset classes. Yet, equities, bonds and commodities were falling at the same time across major financial markets, offering little refuge for the funds. For example, the MSCI World Index and S&P 500 Bond Total Return index were down 10.4% and 10.3% respectively in 2018. Crude oil price, such as for Brent crude, was down 8.2% during the year.

Fortunately, there were pockets of safe haven assets that were relatively unscathed. One was Asian high-yield bonds, which stayed flat during the quarter and are up about 10% year-to-date, says George Efstathopoulos, portfolio manager at Fidelity International. He is one of the trio of portfolio managers who collectively manage three Fidelity multi-asset funds.

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