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July 20, 2016

What are the Strategies of the Industry’s Best Portfolio Managers?

by John Mitchem.

Global investors are vitally interested in both growth and risk mitigation due to concerns over emerging market performance, global monetary policy and low prices for commodities/oil. In a vast investment market there is room for both passive and active strategies, a variety of risk management approaches and emerging wealth management technologies such as robo-advisors. All of this was discussed by our Lipper Fund Award winners at the preceding Lipper Alpha Forum in New York.

What macro-positioning moves have done well over the past year?

  • In terms of credit, asset-backed securities and commercial mortgage-backed securities, high yield and emerging markets (EM) have outperformed over the past several years. In both fixed income and equities, securities selection – across asset classes and sectors – has played a critical role.
  • For equity investors, long-only value has done well, as have risk-mitigated equities investments that provide downside protection. A growing trend is seen in outcome-oriented solutions in which investors outsource investment complexity in pursuit of a specific outcome within a specific risk budget.
  • The stabilization of commodity and energy prices at the end of Q1 has been a positive factor. Given equity market volatility in January, many asset managers have decreased stock market allocations.  But in a slow-growth environment, risk-based assets will continue to perform well.

What investment concerns keep you up at night?

  • Policymakers have become very active in areas over which they have little control – global monetary policy comes to mind. Markets should be focused on macroeconomics, rather than on policy, which is often driven by political factors.
  • Slowing growth in China and Brazil are both of concern. Once again it is the policymakers that are the concern; both of those economies should be on an upward trajectory.  The slowdown of growth in China has impacted commodity valuations, which have in turn impacted credit markets, where many instruments are tied to commodity prices.


How are asset managers embracing risk management in an era of uncertain economic recovery and volatile markets?

  • Risk management tools have gotten more efficient through technology, but asset managers are in the risk-taking business and clients understand this. Risk measurement is critical. It is easier to take risk off the table than it is to build a long-term investment strategy.
  • It’s important that niche investment managers know and understand their asset classes and sectors. Risk budgeting, risk factor analysis and risk allocation are as important as asset allocation.  Managers must be vigilant to avoid illusory risk management policies that can give a false sense of security.

What is the significance of robo-advisory and automated advice to the asset management sector?

  • The introduction of new wealth management technologies doesn’t necessarily displace traditional approaches such as face-to-face interaction and bottom-up portfolio construction. There are many different ways to achieve client goals in the asset management industry and these different approaches can co-exist.
  • Behavior is often the biggest obstacle to positive outcomes. Wealth managers understand their clients and ensure that they undertake strategies appropriate to their capabilities and preferences.  Algorithms don’t really allow for this.  But many wealth managers come from a sales culture.  The best outcome might be the blend of human advisors and the rigor of a process-based approach.


Impact investing and ESG

  • ESG (environment, social and governance) funds have been around since at least 1990. Social impact bonds have also seen more market take-up recently.
  • Many ESG investments use tax-advantaged investments such as municipal bonds. There are definitely income-generating opportunities in the ESG area and many of the funds perform well in comparison with the broader fund universe.

The challenge of changing demographics and global aging

  • Investors want three things – growth, income and principle protection. Boomers and millennials alike need to be wise with their resources.  Investment models must be able to serve investors in all age groups.
  • Asset management flows have swung dramatically in the direction of passive investment, as retirement investors seek tax-advantages and low prices. But markets can overdo any trend and there is a risk that managers may place retirees and pre-retirees into passive investment products without any consideration of temporal market conditions or asset characteristics.
  • Lifecycle funds are a very popular strategy, but the risk budgets of these products should allow for tweaks that take into account market cycles, interest rates and inflation data.


Lipper Alpha Forum, New York, March 2016.


  • Robert Jenkins, Global Head of Research, Thomson Reuters Lipper (Moderator; pictured far left)
  • Lisa Black, CIO and Head of Global Public Markets, TIAA Global Asset Management (far right)
  • David Francis, Head of Equities, Thrivent Asset Management (center right)
  • Barry Mandinach, Head of Distribution, Virtus Investment Partners (center left)

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