Strategy & economics

Smarter diversification

Assets that behave differently to equities give our clients an edge in volatile markets, writes Laurence Forrester

19/01/2018

Laurence Forrester

Laurence Forrester

Portfolio Director

Cazenove Capital has invested a great deal of time and effort in broadening its investment universe to include asset classes where the intention is to provide investment returns that do not wholly correlate with equity markets, particularly in periods of volatility.

For some more traditional wealth managers, where client portfolios are comprised of only equities and bonds, perhaps with a smattering of commercial property, the effect of any significant market retracement is likely to be pronounced. This is especially so given the increasing cross-asset class correlation, which has become a worrying phenomenon.

Different class

Our approach now involves various asset classes, depending on the client mandate, including absolute return vehicles, structured products and infrastructure, as well as some other genuinely esoteric investments such as reinsurance and student housing vehicles.

While it is nearly impossible to tell exactly where we are in this cycle – a consequence of continuing accommodative monetary policy and, until recently, a reluctance from central banks to taper quantitative easing to any meaningful extent – it seems reasonable to suggest that we are closer to the end than the beginning.

While little in the present world can be guaranteed, having the ability to diversify out of equities with a portion of the portfolio should help us to partially mitigate any significant drawdown in equity markets. In addition to this, and as in the financial crisis, we expect that our blend of active third party equity managers will be able to take advantage of any value opportunities, so that our clients’ portfolios participate in any subsequent rally.

First-class service

Cazenove Capital’s client portfolios have benefited from our ability to diversify throughout more difficult market conditions

Ultimately, there are a great many differing styles and methodologies in managing client portfolios and, in many respects, it is difficult to say one is right and another is wrong – so long as managers work within the confines of the mandate they are set. That said, Cazenove Capital’s client portfolios have benefited from our ability to diversify throughout more difficult market conditions and helped us deliver on our promise to clients: they receive a first-class service and attractive, long-term, risk-adjusted returns.

Our multi-asset approach has certainly benefited our clients throughout the current period of yield compression, as we have been properly equipped with the expertise and robust due diligence process required to select appropriate alternatives and diversifiers for client portfolios.

Author

Laurence Forrester

Laurence Forrester

Portfolio Director

Laurence Forrester is a Portfolio Director working within the DFM Team. He joined Cazenove in 2008 having begun working in the City as an equity trader in 2003. He then moved in to Private Client Fund Management and worked for Quilter between 2004 and 2008, during which time he completed the CISI diploma. Laurence graduated with an Honours degree in Anthropology from Goldsmiths' College, University of London, and is a Chartered Fellow of the CISI. Laurence has 13 years’ investment experience.

This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.

Contact Cazenove Capital

To discuss your DFM requirements, or to find out more about our services and how we can help you, please contact:

Nick Georgiadis

Nick Georgiadis

Head of DFM Team nick.georgiadis@cazenovecapital.com
Simon Cooper

Simon Cooper

Business Development Director simon.cooper@cazenovecapital.com