Multi-strategy and multi-asset funds invest across a diverse range of asset classes, including equities, fixed income, property and alternatives such as commodities. By spreading their risk, both types of fund seek to offer investors more attractive risk-adjusted returns than are available by investing in single asset classes alone. Although they differ in important respects, we believe they should be seen as complementary strategies with both having a role to play in meeting investors’ needs.
At Aviva Investors, we believe that successful management of multi-strategy portfolios can only take place if an investment manager has the following foundations in place:
Commitment: The entire business (from the investment and risk managers to the legal and compliance professionals) is committed to solutions that deliver the outcomes that investors require, whether it be increasing their capital, providing an income, beating inflation and/or matching liabilities.
Creativity: Global expertise in a broad range of asset classes spanning fixed income, equity and real estate, along with experience of using financial derivatives. The ability to create investment strategies that can exploit this expertise and experience is also key. Critically, the business needs a culture in which idea generation can flourish and a forum that allows investment professionals to share and debate their views.
Construction: Markets are fixated with short-term events, but we believe the focus should be on building a portfolio of long-term investment ideas. Strategies within the Aviva Investors Multi- Strategy (AIMS) range of funds, for example, have a three-year investment horizon. This reflects our view that it is easier to find profitable investment opportunities over a medium to longerterm horizon than when one has a short-term focus. Employing a longer time frame also helps to generate the most creative and attractive ideas. In addition, we think it is critical to eliminate benchmark constraints, freeing our multi-strategy fund managers to focus on identifying opportunities wherever they may occur.
We believe we have the architecture and culture required to deliver the specific outcomes our clients need. The strong performance of the AIMS Target Return Fund during its first year supports this view. The fund, which was launched at the beginning of July 2014, achieved a gross return of 8.96% against our target of cash + 5% above the Bank of England base rate before charges over three-year periods, with daily volatility of just 4.07% annualised, a little more than a third of that of global equity markets.
We believe we have the architecture and culture required to deliver the specific outcomes our clients need.
Head of Multi-Assets
Local knowledge, global perspective
As a firm, we have a multi-asset pedigree stretching back over 30 years, and manage over £71 billion in multi-asset strategies. Having the right resources is vital when focusing on the outcomes desired by clients. Overall, we manage over £2671 billion across a range of asset classes, and our operations span 16 financial centers. As such, our clients stand to benefit not just from our significant local knowledge and experience, but also from the extensive global investment resources at our disposal.
... our clients stand to benefit not just from our significant local knowledge and experience, but also from the extensive global investment resources at our disposal.
Head of Multi-Assets
Create and collaborate
Managing multi-strategy funds requires expertise in a wide array of asset classes, investment strategies and financial instruments. These portfolios are not only more diverse than traditional funds that invest in asset classes such as equities, bonds or property. We believe that they can only prosper in an environment that fosters creativity and the sharing of ideas across investment desks.
Traditional multi-asset funds, for example, typically look at historical performance data to decide how to allocate between different securities or asset classes. By contrast, our multi-strategy funds start by identifying key, forward-looking investment themes such as divergent monetary policy or a strengthening US economy.
They then seek to gain exposure to investments that are likely to prove profitable if these views prove accurate. Equally, we also implement risk-reducing strategies that can offset the impact on the portfolio if our central views prove inaccurate. This process involves debate among a wide range of our investment specialists who have expertise in a variety of asset classes.
Although we are a global business, we act as a single team, collaborating to combine knowledge and capabilities. We value creativity and empower our investment teams to find and execute great ideas. In-depth research and robust risk management underpin every investment decision.
In coming up with creative ideas, our investment specialists across the business draw on research produced by our dedicated team of strategists and economists, covering the major economies and assessing prospective medium-term returns for the various key asset classes.
Kicking the tyres
The Strategic Investment Group was set up as the forum to debate and challenge the views of our investment professionals. The group, chaired by our chief executive officer, Euan Munro, comprises the most experienced investment professionals from across our business, representing a wide range of disciplines. The forum determines whether ideas are suitable for potential inclusion in the fund.
By July 2015, when the AIMS Target Return Fund celebrated its first birthday, the Strategic Investment Group had reviewed and debated over 140 investment strategies, of which 45 were approved for use. Around 10 new ideas are received by the forum each month.
Although we are a global business, we act as a single team, collaborating to combine knowledge and capabilities.
Head of Multi-Assets
Our investment professionals are able to invest without the constraint of benchmarks. This means they can adopt a diverse range of strategies. As the funds are not benchmarked against a market or peer group, the managers can invest when and where they want. The ultimate aim is to enable the funds to meet their objectives whilst preserving capital, regardless of how financial markets are performing. Whilst taking a three-year view on markets, we can adjust positioning to refine risk exposures and ensure the portfolio is appropriately positioned as the outlook for economies and markets changes.
The following three beliefs underpin our investment philosophy: Markets are not efficient – markets are quick to embed information but not always the correct information, with shifts in sentiment potentially leading to large swings in prices.
Markets are more focused on the short term than the medium-tolong term – more investment ideas with attractive risk-adjusted returns are to be found over a three-year investment period than any other period.
Investment opportunities are not always found in traditional asset classes – our investment ideas aim to identify why and how the market misprices risk. In managing risk for clients, more often than not we employ strategies that allow us to express a view within an asset class or that exploit how the outlook for one asset class differs relative to the outlook for another.
The fund implements numerous strategies across a range of asset classes including equities, bonds and currencies. We have three categories of strategy:
- Market strategies
- Opportunistic strategies and
- Risk-reducing strategies
Each has a different role, and in combination helps us achieve our performance targets while managing risk. Some of them look to generate income, some to reduce risk when markets behave unexpectedly, while others aim to exploit market anomalies irrespective of general market moves. Critically, by mixing strategies from the above three categories, the fund can generate lower overall portfolio risk than the sum of the risks of each individual strategy.
Some of the positions designed to implement these strategies will be held as derivatives and some will be held as direct investments. The managers deploy derivative contracts to take both ‘long’ and ‘short’ positions in various asset classes. Derivatives help us to alter asset exposures quickly, especially in illiquid markets, and to manage risk efficiently. The portfolios can also try to profit from more esoteric strategies, for example, by looking to benefit from changes in the volatility of different equity markets or changes in expectations for future interest rates.
What's under the bonnet?
‘Market’ strategies aim to generate returns if our view on where markets are headed, and which areas offer the best risk/reward ratios, prove correct. For example, we hold a long position in Japanese equities. These have lagged other developed markets for many years, but a reform-minded government is now implementing measures that should boost the economy and encourage companies to behave in a more shareholder-friendly manner.
‘Opportunistic’ strategies seek to deliver positive returns in all market environments. Opportunities can be created when investors panic and dump assets indiscriminately, or as a result of the behaviour of non-profit seeking market participants, such as central banks. Thus, at one point, we implemented a strategy in which we had a long position in the Indian rupee and a short position in the euro. We anticipated that this strategy would prove profitable should structural reforms boost the Indian economy by more than the market anticipated, or if euro zone monetary policy turned out to be looser than the market expected. The ECB did indeed loosen monetary policy by more than expected and the euro fell sharply as a result. This position is no longer in the portfolio.
‘Risk-reducing’ strategies aim to generate positive returns if our views on where markets are headed do not materialise, and to generate flat-to-mildly positive returns if our forecasts prove correct. When market conditions are challenging, these strategies can significantly boost portfolio returns, thereby helping to control risk. Among risk-reducing strategies, various ‘long’ positions in the US dollar, which reflect our view that the US currency is undervalued given the prospect of tighter US monetary policy, performed strongly in 2014 and 2015. Investors tend to flock to the dollar in times of uncertainty, hence why these strategies are considered to be risk reducing.
In an environment where investors face a bewildering choice of ever-more complex financial products, securing the outcomes they require can be challenging. As the asset management arm of one of the world’s largest insurers, Aviva Investors has a long track record of investing in order to meet specific outcomes. Through the AIMS funds, we believe we have the strategies that meet investors’ needs, now and over the long term. Our confidence stems from: the commitment of the entire business to the concept; our investment expertise and long experience across a wide range of asset classes; our culture of sharing ideas between investment desks; and the freedom we give our managers to invest in an unconstrained manner.
Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (“Aviva Investors”) as at 31 October 2015. Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Past performance is not a guide to the future.
The attention of investors is drawn to the ‘Risk Warnings’ contained in the Prospectus. Due to the fact the strategy will make significant use of financial derivatives, the following risk factor is particularly relevant:
Derivative risks: As a result of the high degree of leverage typically employed when trading financial derivatives, a relatively small price movement in the underlying asset may result in substantial losses to the fund’s assets.
The content of this document does not purport to be representational or provide warranties above and beyond those contained in the Prospectus and subscription documentation of the Fund. The Prospectus and the subscription document contain the full terms, conditions, representations and warranties in respect of the Fund. Nothing in this document shall be construed as forming any part of those terms, conditions, representations or warranties.
The distribution and offering of shares may be restricted by law in certain jurisdictions. This document should not be taken as a recommendation or offer by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation.
Portfolio holdings are subject to change at any time without notice and information about specific securities should not be construed as a recommendation to buy or sell any securities.
As the fund may invest outside of the UK or hold currencies other than sterling, any currency exchange rate movement may cause the value of an investment to fall as well as rise.
The Aviva Investors Multi-Strategy Target Return Fund is a sub-fund of the Aviva Investors Investment Funds ICVC umbrella. For further information please read the latest Key Investor Information Document and Supplementary Information Document. The Prospectus and the annual and interim reports are also available on request. Copies in English can be obtained from Aviva Investors UK Fund Services Limited, St. Helen’s, 1 Undershaft, London EC3P 3DQ or by contacting our Relationship Management Team on 0800 0154773 or email them on firstname.lastname@example.org. You can also download copies from our website.
Investment into the Fund is provided by Aviva Investors UK Fund Services Limited, the Authorised Corporate Director. Registered in England No. 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: St. Helen’s, 1 Undershaft, London EC3P 3DQ, an Aviva company. www.avivainvestors.com.
Aviva Investors Global Services Limited is the Investment Manager to the Aviva Investors Multi Strategy Target Return Fund.
Issued by Aviva Investors Global Services Limited, the Investment Manager to the Fund registered in England No. 1151805. Registered Office: St. Helen’s, 1 Undershaft, London EC3P 3DQ. Authorised and regulated by the Financial Conduct Authority and a member of the Investment Association. Contact us at Aviva Investors Global Services Limited, St. Helen’s, 1 Undershaft, London EC3P 3DQ. Telephone Calls may be recorded for monitoring and training purposes.
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