With the crashes of 2008, 2011 and 2013 in mind, this could be named the “decade of intermittent crashes,” according to Swabey.
“After the 2008-2009 crisis the ability to make asset allocation choices changed, as many investors and consultants no longer wanted to make this decision. As well as asset allocation choices, investment styles that had worked consistently suddenly disintegrated,” he explained.
This has changed the way the bank’s clients approach strategic asset allocation, in Swabey’s view. “Whereas before clients would come to me with well thought out strategies of how much to hold in equities, bonds etcetera, now they give me an outcome and say: you tell us how to achieve this specific outcome,” he explained. “So our role has changed to a more advisory one.” This is due largely to the fact that clients are outsourcing strategic decisions to someone else nowadays, according to Swabey.
A second trend that Swabey has noticed is that clients are looking to maximise returns via tactical asset allocation to a greater degree and more aggressively today. “Almost everyone is going that way,” said Swabey. The French and Italian markets in particular like tactical allocation and believe in outsourcing, he noted.
Third, clients are looking for a broader investable universe. “Whereas high yield and some emerging market bonds were pretty esoteric before for some cautious investors, they are mainstream now.”
Swabey mentioned the importance of protecting portfolios in today’s volatile environment. “The question is: can I invest to limit exposure to beta? “he said.
This can be done either by a new investment style, such as style factors or risk premia, (carry, momentum and value diversified across bonds, equities and currencies), or portfolio risk protection, which can be scaled to meet their specific requirements, said Swabey.
Meanwhile, he explained that HSBC Asset Management is underweight developed government and emerging market bonds and underweight US equities, but positive within equities in Europe and Japan.
