Peter Fitzgerald, Global Head of Multi-Assets, discusses the aim of the Aviva Investors Multi Strategy Target Return Fund. After 2016 was marked by difficult periods for markets, how did the fund hold up and what’s the outlook for 2017?
Tel: + 44 (0) 800 015 4773*
St Helen’s, 1 Undershaft
London EC3P 3DQ
*Telephone calls may be recorded for training and monitoring purposes.
PETER FITZGERALD, Aviva Investors
So the aim of the Aviva Investors Multi Strategy Target Return Fund, or AIMS for short, is to deliver a return of cash plus 5% over rolling three-year periods, and to do this with less than half the volatility of equity markets.
So last year 2016 was marked by a number of difficult periods for markets, and the Aviva Investors Multi Strategy Target Return Fund, or AIMS, actually navigated some of those volatile periods particularly well. So if you consider the objective is to deliver a return of cash plus 5%, but to do so with less volatility or less than half the volatility of the equity market, it certainly managed to actually deliver a positive return in January and February 2016 when markets fell 12 to 14%. Again, through the uncertainty around the Brexit referendum when markets fell 6 or 7%, the portfolio actually held up very well and only lost about 20 basis points. And again towards the end of the year with the uncertainty and the volatility around the US Presidential elections, again the portfolio protected capital. So when one looks back over the entire year, we delivered a small positive return. We were disappointed we didn’t deliver the 5%; however, we were very proud of the defensive characteristics and how we managed to protect capital through each of those difficult periods in 2016.
So we assess performance in terms of how much risk are we taking to deliver the returns that we’re looking to achieve? So our objective is to deliver cash plus 5% over rolling three-year periods, and we’re broadly on track to do that since launch. However, what we are very cognisant of is that as well as protecting capital we must also participate when markets actually do rally. And we have been positioned recently to benefit from the events such as the French presidential election, and the performance of the portfolio has picked up nicely around that period. However, what we’re not trying to do is simply build a fund that goes up when stock markets go up and goes down when stock markets go down; what we’re looking to do is really have a portfolio which has got uncorrelated investment return.
So the key themes in the portfolio, today, and ones that really have been in place for the last nine to 12 months are a belief that global growth is actually picking up, that we’re seeing a reflationary environment starting to emerge. So the key positions within the portfolio are European equities and European banks, emerging market equities and emerging market debt. And in addition to that then we say if this doesn’t work what can we put into the portfolio to help protect us? And we have positions in there which we believe will protect us should inflation actually pick up. So we’re long inflation in our portfolio. And we also have positions to benefit from the fact that the yield curve is actually very flat. So investors today are not really compensated for investing into bonds on a five-year or a 10-year view relative to shorter dated bonds, and we have positions in our portfolio that would benefit if those curves were actually to steepen.
So one of the key positions in the portfolio today within what we call our market returns section would be European equities and a bias towards European financials and banks. And our view is that this is a particularly underinvested and an asset class that has actually been relatively depressed for the last five to six years, and in an environment where one should expect interest rates at least to stop falling and potentially to increase, and European banks provide an interesting opportunity. And then a counterbalance to that would be a position where we believe we can actually reduce risk in our portfolio is we are short UK inflation. So if one looks at where UK inflation expectations are today, they’re at about 3½% in five years’ time. And we believe that those inflation expectations effectively have been pushed higher through transitory things such as a rapid depreciation in the currency post the Brexit referendum. And if one were to see some uncertainty develop in the UK economy, we believe that UK inflation is unlikely to remain at those high levels.
This video is for investment professionals only. It is not to be distributed to or relied on by retail clients. Except where stated as otherwise, the source of all information is Aviva Investors as at 10 April 2017. 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. 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.
The value of an investment and any income from it may go down as well as up and outcomes are not guaranteed. Investors may not get back the original amount invested.
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. Investors’ attention is drawn to the specific risk factors set out in the fund’s share class key investor information document (“KIID”) and Prospectus. Investors should read these in full before investing.
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. 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 Helens, 1 Undershaft, London, EC3P 3DQ. You can also download copies from our website.
Issued by Aviva Investors UK Fund Services Limited, the Authorised Fund Manager. Registered in England No 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No 119310. Registered address: St Helens, 1 Undershaft, London EC3P 3DQ. An Aviva company. www.avivainvestors.com. Approved for use in the UK.