It’s the time for portfolio managers to get ‘defensive’, but do their investors know it?

In the midst of the late, late cycle, Newgate’s Henry Adefope tells asset managers their words will pay more than actions for clients.

The Chartered Institute for Securities and Investment (CISI) is valuable industry body for the investment sector and its engaged practitioners and members.

It often puts on events that truly capture the mega trend, or mega-concern of the moment, and the attendance at these things is always brimming as a result.  It was no different this time around (Positioning for changing markets: Defensive assets; compered by DWS’s Verity Worsfold, VP Portfolio Solutions, Multi-Asset & Solutions) with the current elephant in the room being protecting portfolios in the face of hawkish monetary policy.

And no doubt it’s a twitchy, defensive time for investors, as a friend of mine, investment reporter David Brenchley, recently illustrated: Investors Flee Funds at Record Rate as Risks Rise

Selfishly, I attended the event at Deutsche Bank’s office at 1 Great Winchester Street to pick-up some much needed ‘Continual Professional Development’ (CPD Hours – investment advisers will hear my cry), but also rather selflessly, to get a grasp of how critical interest rate risk management is to all types of investor portfolios, whether retail or institutional.  

How can I help our asset management clients communicate their strategic management of this risk to clients?

How important is it at this juncture?

By the look at some of the max drawdown figures from previous hawkish environments, very much so!

The themes that stood out from Verity’ presentation from an investor perspective are reflected in the below word cloud:

Investment managers certainly have numerous strategies available to them to mitigate the effects of interest rate rises on theirs and client portfolios, however, and just as pertinent, is the ability to communicate the above capabilities.  You’d be surprised how many asset managers overlook something as basic yet as important as this, and consequently experience redemptions soon after.

Our saying at the Wealth & Asset Management Group at Newgate, is that there should always be strong correlation between market volatility, and investor communication – the more duress a client is feeling over their investments, the greater level of communication is needed. This is necessary throughout the distribution ecosystem – from client service, marketing, right through to consultant relations.

But it’s not just communication that has to adapt to seasonal-sentimental changes in the investment industry, marketing materials must also. You wouldn’t expect me to wear my favorite tight-vest-and-shorts-combo to go skiing in Chamonix – likewise investment managers must be prepared to change with the seasons, as markets and investor appetites shift. Shutting up shop, working behind closed doors and ignoring the human need for reassurance from investors at slightly precarious times risks pushing money away.

Today human intuition can be said to be characterised by hyper-anxiety, the need for simplicity, immediacy and convenience. People (and institutions) will decide with their feet, and quickly.

Enter the key words from the word cloud image above, into the Google search bar and only few brand names are visible each time. Why? Industry marketing doesn’t appear to have adapted yet to the irrationality of investor behaviour.

The truth is that if I’m an investor, anxious about an imminent market downturn – the more information I am being provided about defensive asset allocation, and risk management from the people managing my money, in real-time, the better. This is not currently the case for most managers, so there’s work to be done.


By Henry Adefope
Account Director

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