MULTI ASSET FROM COLUMBIA THREADNEEDLE INVESTMENTS COLUMBIATHREADNEEDLE.CO.UK COLUMBIATHREADNEEDLE.COM
CONTENTS 01 What is a Multi Asset fund?... 2 02 Why Multi Asset?... 3 03 The Risks of Multi Asset investing.... 5 04 Why Columbia Threadneedle Investments?... 6 05 Products.... 9
WHAT IS A MULTI ASSET FUND? Multi asset funds mean different things to different people. They are not a new phenomenon, but it is their definition that has evolved over time. Pension schemes and investors have been investing in multi asset funds for a significant amount of time, with many running their own versions by investing in an array of different asset classes. Multi asset funds in their present form started to come to prominence in the mid-2000s. While many of the larger pension schemes had the governance and investment structures in place to review the broad asset classes available to them and select the appropriate managers, a significant number of schemes did not. Therefore a new breed of multi-asset funds was created to cater for those schemes without the governance and investment infrastructure. By holding a diverse range of asset classes, multi asset funds seek to provide long-term capital growth commensurate with a reduction of absolute volatility compared to equities. 2
WHY MULTI ASSET? Pension schemes are increasingly focusing on achieving strong returns for each unit of investment risk. For defined benefit schemes this reflects concerns on how to close funding gaps in a more predictable manner and manage pressure from sponsors over balance sheet volatility. For defined contribution, the focus reflects the need to build a pensions pot sufficient to secure a sustainable and comfortable retirement. Multi asset funds specifically aim to achieve good total returns with low levels of volatility and for this reason should be central to pension scheme investments. 1000 While we believe over the longer term that equities will continue to provide the most attractive returns, they are prone to periods of volatility and can often underperform when investors typically most need good returns. The following chart looks at the long-term returns from equities, highlighting times where the markets have witnessed 40 per cent + drawdowns. 40%+ equity market drawdowns 100 10 WWI 1929 1921 UK Depression WWII Bretton Woods/OPEC Crisis/UK Secondary Banking Crisis Tech Bubble 1 1870 1890 1910 1930 1950 1970 1990 2010 Real UK TRR (BarCap) Real uity Prices (Shiller) Sources: Columbia Threadneedle Investments, Barclays Capital and Robert Shiller. Past performance is not a guide to future performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. GFC Multi asset funds typically seek to provide long-term capital growth, targeting two-thirds of the volatility of equities, by holding a diverse range of asset classes. As the market tends to ascribe larger risk premia to more volatile assets, multi asset funds can seek to capture a great deal of these risk premia by combining a number of individually volatile assets. However, given the low return correlation between certain of these assets, the overall volatility of the fund should be lower than the sum of the individual components. That is, multi asset funds should be more robust against a multitude of economic and investment scenarios than any one volatile asset class. It s this combination of lower volatility and long-term capital growth that lies behind the appeal of multi asset funds. Indeed, when managed dynamically we believe that multi asset investing can provide attractive positive returns whilst helping to keep volatility in check. 3
One argument against dynamic managed asset allocation strategies would be to hold all assets at all times. But the opportunity to actively position funds for different economic and market environments would be lost to such an approach. This is highlighted by examining the table below of asset class returns over each individual calendar year since the year 2000. The divergence between the best and worst asset class returns has ranged from 19 per cent to 87 per cent over the period. The spread of returns even in boring years is substantial. Therefore, having a manager that looks to dynamically allocate between, and within asset classes, to minimise drawdowns and participate in growth, should enhance the compounded returns and therefore the overall return per unit of risk. This additional overall governance, specifically the ability to switch asset classes dynamically, appeals to pension schemes. Asset class returns for individual calendar years since 2000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 42.9% 10.1% 9.0% 9.0% 4.2% 2.5% HY 0.6% -0.4% -4.1% -5.2% -22.0% -24.8% 7.6% 5.2% HY 3.7% 3.1% 1.6% 0.2% -0.9% -9.7% -11.8% -17.4% -17.5% -27.4% 13.8% 12.7% 9.5% 8.4% 8.0% 8.0% HY 5.3% -15.1% -18.8% -23.4% -26.0% -30.2% 40.9% HY 32.1% 25.4% 22.7% 19.1% 16.4% 11.7% 7.6% 7.1% 6.8% 3.6% 2.1% 17.3% HY 15.4% 13.0% 11.3% 8.3% 7.9% 6.7% 6.6% 3.1% 2.7% 1.6% -1.7% 49.8% 39.9% 35.1% 31.3% 22.4% 19.5% 17.7% 9.9% 8.5% 8.0% HY 7.2% 3.7% 18.2% 16.6% 14.9% HY 11.8% 8.3% 2.6% 1.4% 0.8% 0.5% -6.5% -6.7% -10.2% 38.0% 29.2% 14.7% 12.9% 9.5% 8.3% 7.0% 4.7% 4.6% HY 2.4% 0.4% -5.4% 50.8% 43.9% 13.6% 3.5% -3.6% -10.0% -12.5% -14.5% -26.7% HY -26.9% -29.7% -36.3% 61.6% HY 57.3% 29.4% 23.5% 14.7% 14.7% 12.2% 7.3% 6.4% -0.8% -4.0% -7.4% Source: Bloomberg 31 December 2014. Past performance is not a guide to future performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. 34.2% 23.5% 21.0% 19.7% 19.6% HY 15.7% 12.7% 8.9% 8.9% 8.8% 8.2% 7.3% 20.3% 16.9% 10.6% 6.8% 6.5% HY 3.4% 2.4% -2.1% -10.1% -12.9% -13.8% -17.8% HY 19.1% 15.5% 14.7% 13.4% 11.0% 10.3% 3.6% 2.7% 2.4% 0.6% -2.8% -5.4% 30.2% 25.0% 23.7% 18.5% HY 6.7% 1.6% 0.6% -4.0% -4.1% -5.7% -11.2% -29.6% 20.5% 18.8% 14.9% 12.5% 5.8% 4.8% 4.4% HY 2.7% 2.3% 0.6% 0.3% -11.8% 4
THE RISKS OF MULTI ASSET INVESTING However, there are risks in multi asset investing. Some multi asset managers make meaningful use of leverage or employ niche, esoteric and illiquid asset classes. Leverage and illiquidity are clearly risks that will not suit all investors. Understanding a manager s investment philosophy and process should enable investors to appreciate the risk profile for any given strategy. However, while multi asset funds are increasingly seen as a distinct asset class, not all multi asset funds are created equal. In fact, we can identify five distinct strategies: nstrategic Diversification, where the fund allocates around broad asset allocation limits; ndynamic Asset Allocation Growth Orientated, where the fund invests in broad array of growth assets; ndynamic Asset Allocation Capital Preservation, where the fund seeks to preserve capital or limit downside; Derivative n Heavy, where the fund implements investment ideas through the use of derivatives and employs leverage in doing so, and; nrisk Parity, where the fund allocates equal risk across and within asset classes typically leveraging the fixed income allocation. Though there are more adaptive versions that actively manage the asset allocation. There is no correct strategy rather the risk is not fully understanding the underlying characteristics of the strategies. One key point to remember is that, given the diversification within and across asset classes, these funds will likely underperform the best-performing asset class in any given period. Thus in a year when equities are surging ahead multi asset funds will lag. Additionally, managers might also sometimes invest in the wrong asset class. 5
WHY COLUMBIA THREADNEEDLE INVESTMENTS? Quite simply Active Asset Allocation is central to our business We have a long successful track record in managing asset allocation mandates, as witnessed by the relative performance of one of our longest running segregated client mandates. The representative asset allocation account shown below is from 1998 to 2014 and gives the relative return of the account versus its strategic benchmark: Performance relative to benchmark 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 0.9% 0.7% 0.8% 3.2% 2.1% 1.2% 1.0% 1.0% 0.3% -0.5% -0.4% -0.4% -1.0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Ann Source: Columbia Threadneedle Investments as at 31 December 2014. 1. Peer group is Lipper Balanced Managed. From 1st January 2012 the benchmark for the fund changed from peer group to a fixed weighted composite. Long-term fund and benchmark returns are not shown in the performance tables as it is not considered good industry practice to link net and gross returns or sector medians with indices as it could be deemed to be misleading. However, long-term relative performance is reported based on geometrically linked monthly returns. Portfolio weights prior to January 2012 have been adjusted for property exposure. 3.9% 3.4% 2.6% 2.1% 1.8% These strong, consistent, long-term returns are testament to the robust asset allocation process at Columbia Threadneedle Investments. Indeed, this is further evidenced by our key diversified growth funds having met and exceeded their performance targets. Threadneedle Dynamic Real Return Fund 0.5% 1.4% Threadneedle Dynamic Real Return Fund CPI +4% Since Inception Annualised Return 8.8% 4.4% Since Inception Risk 4.4% 6.5% Annualised Return 16% 14% 12% 10% 8% 6% 4% DDR UK Bonds CPI (Lagged) +4% Equities UK Equities 2% Bonds CPI (Lagged) 0% 0% 2% 4% 6% 8% 10% 12% 14% Risk Cumulative Return (%) 18 16 14 12 10 8 6 4 2 0 Jun 13 Aug 13 Oct 13 Source: Columbia Threadneedle Investments as at 31 March 2015. Performance is in GBP, on an offer-to-offer basis, gross of annual management charges, using Close prices. Arithmetic relative. Source for fund data is Columbia Threadneedle Investments. Past performance is no guide to future returns. The value of investments and income from them can go down as well as up. Changes in exchange rates may also cause the value of investments to fall as well as rise. Dec 13 Feb 14 Apr 14 Jun 14 Aug 14 Oct 14 Dec 14 Feb 15 Threadneedle Dynamic Real Return Fund CPI +4% 6
Since the inception of the Dynamic Real Return strategy in June 2013 we have exceeded our performance target of CPI +4% and done this with less than two-thirds the volatility of equities, which is represented by the CPI +4% and CPI diamond. Threadneedle Pensions Multi-Asset Fund 180 Cumulative performance 160 140 % change 120 100 80 60 Oct 07 Apr 08 Oct 08 Apr 09 Oct 09 Apr 10 Oct 10 Apr 11 Oct 11 Apr 12 Oct 12 Apr 13 Oct 13 Apr 14 Oct 14 Multi-Asset Fund MSCI AC World Index BoE Base Rate +4% Annualised performance (%) 1 year 3 years 5 years Since inception 1 Threadneedle Pensions Multi-Asset Fund 11.0% 8.0% 8.4% 6.8% UK Base Rate +4% 4.5% 4.5% 4.5% 4.9% Excess return +6.5% +3.5% +3.9% +1.9% Realised volatility (%) 3 years 5 years Since inception 1 Threadneedle Pensions Multi-Asset Fund 5.0% 6.3% 8.3% MSCI ACWI 8.8% 10.7% 15.4% Fund vs MSCI ACWI 56.8% 58.9% 53.9% Source: Columbia Threadneedle Investments/Factset, Thomson Reuters. As at 31 March 2015. All performance in GBP, on an offer-to-offer basis, gross of annual management charge using global close prices. Figures for 3 years, 5 years and since inception are annualised. Past performance is no guide to future returns. The value of investments and income from them can go down as well as up. Changes in exchange rates may also cause the value of investments to fall as well as rise. 1 Inception date 31 October 2007. Realised volatility measured on monthly basis. This has been echoed in the Threadneedle Pensions Multi-Asset Fund, which performed strongly since inception and has done so with less volatility than an equity only portfolio would typically have. SUMMARY In summary asset allocation is a key part of our DNA and something that we are proud of. We have continued to improve and refine our asset allocation process over the past 20 years, rather than enact any revolutionary change. The investment philosophy is based on three core beliefs: nfirst, we believe active management is the most effective way to take advantage of the many opportunities that arise across financial markets. nsecond, we believe in combining macro and micro research as this gives us our Perspective Advantage. We are not entirely top-down or bottomup managers, we run both concurrently, and they are iterative and inform each other. Our macro level understanding helps inform our investment decisions at the micro level, when we are constructing portfolios. When we are conducting fundamental research, the information we gather from companies, management and central banks helps us to determine our macro views. n Third, we believe in the appropriate allocation of risk when managing our clients money. By paying careful attention to risk/return profiles, we aim to generate superior and repeatable risk-adjusted returns for our clients. 7
PRODUCTS We have active, research driven approaches that aim to blend an optimal mix of investments to deliver targeted returns, while drawing on the scale and diversity of Columbia Threadneedle Investments wider investment platform and sophisticated risk management framework to enable a complete look-through risk analysis on positions held within funds. We have three key multi asset funds and these are shown below: Fund Threadneedle Dynamic Real Return Fund Threadneedle Multi Asset Income Fund Target CPI+4% Achieve income with the prospect of capital appreciation over the medium to long term Volatility Up to two-thirds of equity volatility Neutral allocation Unconstrained no neutral positions Lower volatility than an equity only portfolio Equity 40% Fixed Income 40% Property 20% Threadneedle Pensions Multi-Asset Fund Cash+4% (Defined as Bank of England Base Rate). Outperform strategic benchmark Approximately two-thirds the volatility of equities Equity 40% Fixed Income 30% Alternatives 30% Launch Date June 2013 July 2014 September 2007 Asset Allocation limits Equity 0-75% Cash & Bonds 0-100% Commodities 0-20% Alternatives 0-10% Property 0-20% Implementation Sources of Return Passive strategies Physical securities Internal Funds Majority through asset allocation Additional through stock selection (smaller proportion) Equity 20-50% Fixed Income 20-70% Cash 0-10% Combined Cash & Fixed Income 30-80% Property 0-30% Minimum Investment in GBP 30% Passive strategies Physical securities Internal Funds Income Asset Allocation and stock selection Capital Growth Asset Allocation and stock selection Lead Portfolio Manager Toby Nangle Toby Nangle Alex Lyle Equity 30-50% Fixed income 20-40% Alternatives 20-40% Primarily through Internal Funds 1/3 Asset allocation 1/3 Stock selection 1/3 Thematic/sector Structure NURS NURS UK Life company Leverage Long only, unlevered Long only, unlevered Long only, unlevered Liquidity Daily Daily Daily OCF 50 bps 50 bps 50 bps Source: Columbia Threadneedle Investments 31 December 2014. The fund characteristics described above are internal guidelines (rather than limits and controls). They do not form part of the fund s objective and policy and are subject to change without notice in the future. 8
To find out more visit COLUMBIATHREADNEEDLE.CO.UK Important information: For internal use and for Professional and/or Qualified Investors only (not to be used with or passed on to retail clients). Past performance is not a guide to future performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Threadneedle Opportunity Investment Funds ICVC ( TOIF ) is an open-ended investment company structured as an umbrella company, incorporated in England and Wales, authorised and regulated in the UK by the Financial Conduct Authority (FCA) as a Non-UCITS scheme. The Threadneedle Pooled Pension Funds Key Features Document (KFD) is available on the institutional site of www.columbiathreadneeedle.co.uk. The KFD gives a summary of information about Threadneedle Pension Limited s pooled pensions in order to help you decide if you want to invest in funds, as well as a full list of risk factors applying to the funds Columbia Threadneedle Investments provides insurance policies that entitle the holder to the value determined with reference to the underlying investment in a pooled pension fund. The holder of a policy does not own the units in the selected fund. Columbia Threadneedle Investments does not give investment advice. References to individual securities, strategies or funds should not be read as a recommendation to buy, sell or hold them. The specialist and strategy pooled funds referred to in this document are not available for direct investment by the public. If you are in doubt about the suitability of any investment, you should speak to your financial adviser. Please refer to the Risk Factors section of the Key Features Document for all risks applicable to investing in any fund and specifically this Fund. Threadneedle Pensions Limited. Registered in England and Wales, No. 984167. Registered Office: 60 St Mary Axe, London EC3A 8JQ. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. Subscriptions to a Fund may only be made on the basis of the current Prospectus and the Key Investor Information Document, as well as the latest annual or interim reports and the applicable terms & conditions. Please refer to the Risk Factors section of the Prospectus for all risks applicable to investing in any fund and specifically this Fund. The above documents are available free of charge on request from Columbia Threadneedle Investments at PO Box 10033, Chelmsford, Essex CM99 2AL. The mention of any specific shares or bonds should not be taken as a recommendation to deal. The research and analysis included in this document has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. This presentation is not investment, legal, tax, or accounting advice. Investors should consult with their own professional advisors for advice on any investment, legal, tax, or accounting issues relating an investment with Columbia Threadneedle Investments. This presentation and its contents are confidential and proprietary. The information provided in this presentation is for the sole use of those attending the presentation. It may not be reproduced in any form or passed on to any third party without the express written permission of Columbia Threadneedle Investments. This presentation is the property of Columbia Threadneedle Investments and must be returned upon request. Issued by Threadneedle Investment Services Limited. Registered in England and Wales, Registered No. 3701768, Cannon Place, 78 Cannon Street, London, EC4N 6AG. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com Issued 05.15 Valid to 09.15 J23218