In this episode of the Investing on the go podcast, FundCalibre interviews Philip Chandler, co-manager of the Elite Radar Schroder Global Multi-Asset Cautious Portfolio. Philip provides insights into the fund’s aims, investment strategies, and how it leverages Schroders’ extensive resources to deliver dynamic asset allocation, especially in the face of recent market volatility and uncertainty.
Why you should listen to the interview
This interview offers a deep dive into the strategic approach of the Schroder Global Multi-Asset Cautious Portfolio. Philip Chandler explains how the fund’s dynamic asset allocation and cost-efficient management provide resilience in volatile markets. Investors seeking a cautious yet actively managed portfolio will gain valuable insights into this Elite Radar fund’s unique methodology.
This interview was recorded on 5 August 2024. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights
“I don’t think there are many firms in the industry who could even produce this solution.”
“We’re in a great position at Schroders in that we’ve got all the required tools in-house. First, we’ve got one of the largest multi-asset teams in the industry. We’ve got our own economics team, our own capital market assumptions, our own proprietary portfolio construction tools. We are well known for our dynamic asset allocation. And secondly, we’ve got fantastic stock and bond pickers. And we’ve got variety as well. So that gives us choice and allows us to construct portfolios that are balanced by style. So I don’t think there are many firms in the industry who could even produce this solution of both active asset allocation and active stock selection, let alone at this price.
“We’ve worked hard to keep costs down. We’re a big firm, we manage over £750 billion worth of client assets including a lot of institutional money. So that gives us economies of scale and a real focus on efficiency to the benefit of our clients. And that enables us to produce this solution of active management, both in terms of asset allocation and stock selection, but an OCF that’s capped at 22 basis points.”
The importance of dynamic asset allocation today
“The last couple of years have shown us what happens when inflation is a threat. Both equities and bonds can fall together and that positive correlation means that multi-asset investors that passively hold a fixed ratio of equities and bonds have been burned.
“We’ve done a lot of work on what we call the 3D reset, looking at how demographics, deglobalisation and digitalisation, the three big structural themes that are all likely to cause a deterioration in the trade off between growth and inflation. So in short, for any given level of growth, inflation is likely to be higher.
“So I don’t think you can lazily rely on a negative equity bond correlation to always bail you out in the future. I’m not saying it won’t work at all. If growth and inflation fall together, then bonds will fare well as we’re seeing today. But you can’t control whether inflation will be an issue whenever you need bonds the most and just look at the last couple of years for that.
“So if you care about portfolio volatility, if you care about trying to smooth the path of returns, then I think you need to give a bigger role to dynamic asset allocation as opposed to simply sitting with the same passive allocation hoping for the best.”
Benefits of using internal managers in this strategy
“The first thing to say is the advantages of using internal managers is the access we get. I can see their positions, I can automatically run them through my risk systems every single day and I can make sure that the combination of the managers which we’re choosing works together as a whole.
“By using internal managers, I can see what they’re doing every single day I can go and talk to them, I can go and sit on their desk and ask them why the hell have they done something. That access you don’t get with third party managers.
“The risk of course when you have internal managers is the accusation that may be you are doing it for the benefit of the firm. I wanna really put that to bed because as I said, we’re one of the largest multi-asset teams in the industry and we didn’t get to where we are by just asset gathering for the rest of the firm. We are fully independent within Schroders. I’ve got a fiduciary duty to my clients. I’m not paid to buy Schroder product.
“The real focus is on the return stream that we generate for our clients. So we’re in this wonderful position of having both a big firm with a broad range of capabilities, but within that a big multi-asset team that’s independent and can stand on its own two feet and do the right thing for clients.”
Taking risk off the table
“More recently, we’ve taken a lot of those hedges off. We took them off a couple of months ago because we didn’t see that inflation threat anymore. Partly because it had been priced in the market and therefore it was already discounted. But also clearly growth is slowing. Inflation has been moderating from the pickup, which we saw in the first half.
“Recently we’ve taken risk off further. So a couple of weeks ago we took some risk off the table, which obviously is fortuitous given the moves we’ve seen recently. And the real question we’re grappling with now is these big moves we’ve seen in markets in the last 48 hours. We obviously had a weaker payrolls reports and nonfarm payrolls. Employment data in the US on Friday was a bit weaker, but are we looking here at a soft landing or something worse?
“Again, the market’s really going for this idea of significant Fed rate cuts. Is the economy really that weak? Are we gonna go from a slowdown here to something far worse? And I think it’s not clear at the moment.
“So we’re grappling at the moment, we’ve taken some active risk off the table, do we take some more off? Do we use this opportunity to actually add some more? Those are the questions we’re going through at the moment and that really I think shows the dynamism in the portfolio and the fact that we are fund managers, we are looking at the portfolio every single minute, every single day trying to work out what to do next.”
Conclusion
This interview sheds light on the disciplined yet dynamic approach of the Schroder Global Multi-Asset Cautious Portfolio, showcasing its potential to navigate complex market conditions. Philip Chandler’s insights emphasise the importance of strategic asset allocation, active management, and cost efficiency in building a diversified portfolio. Whether you’re an advisor or investor, this conversation provides key takeaways on how to manage risk and optimise returns in today’s uncertain economic landscape.
