Although the current macro backdrop does not bode well for markets, investors should consider an Asia-focused dynamic multi-asset strategy that keeps volatility at bay and, at the same time, provides stable income.

Market volatility has surged over the last year, driven by many uncertainties weighing on investor sentiment. The persistently high inflation and the more aggressive tightening by central banks globally, which has led to fears of a recession next year, are at the forefront of investor concerns. In addition, the COVID-induced lockdowns in China and the ongoing military tensions between Ukraine and Russia have made the investment landscape even more challenging.

While the macro backdrop does not bode well for markets, the current investment landscape has driven bottom-up opportunities, with divergent performances in sectors and companies. That is especially true in Asia, where most markets still have inflation under control relative to their Western counterparts. Although inflationary pressures due to rising commodity prices have started to affect some Asian markets, inflation in the region was much lower than the West towards the end of last year. Today, most central banks in Asia are more patient with rate hikes than the US and Europe.

China, for example, has become the only country that will be easing on both monetary and fiscal fronts, as the government’s priority this year is to stimulate weakening demand. In other parts of Asia, certain countries are benefiting from higher commodity prices, such as Indonesia, being a net exporter of commodities.

A dynamic multi-asset strategy to achieve lower volatility

Against the current backdrop, investors would require a nimble investment strategy to identify opportunities while keeping volatility at bay. One example is the Value Partners Asset Allocation Asian Bias strategy, an actively managed multi-asset strategy that invests across Asian assets, including equities and fixed income.

The strategy aims to achieve lower volatility through diversification, not only among different asset classes but also among sectors, countries, styles, and risk factors. Its dynamic feature is key to managing risks, in which the strategy can invest flexibly across different asset classes to maximise risk-adjusted returns.

The strategy, which combines top-down market views and bottom-up fundamental research, is benchmark agnostic and can flexibly invest up to 70% of its assets in either Asian equities or fixed income. It may allocate up to 20% of the strategy to other asset classes, including non-Asian securities and commodities, indirectly through ETFs. In addition, hedging strategies can be employed to manage risks when needed.

In light of the several uncertainties in the market, Value Partners Asset Allocation Asian Bias strategy has dynamically shifted its assets in the past five months to manage volatility. For example, the average strategy credit rating has risen to BB from BB- by reducing the percentage of non-rated bonds and shifting into investment grade bonds. Due to the rising interest rate environment, its exposure to technology stocks has been lowered, especially in companies with longer cash flow duration, since they are more vulnerable as yields get higher. At the country level, the strategy’s Taiwan exposure has slightly been reduced amid expectations that the semiconductor cycle has peaked.

In terms of capturing opportunities, the strategy has increased its weighting of Indonesian equities and fixed income holdings on the back of the country’s reopening and higher commodity prices. Similarly, its exposure to energy and commodities has risen due to higher energy prices and inflation.

The strategy also integrates ESG factors into its investment process through Value Partners’ proprietary scorecards, which cover all of the firm’s listed investees across both equities and fixed income security holdings.

Stable income + alpha

Another key feature of the Value Partners Asset Allocation Asian Bias strategy is to not only exploit growth potential but also provide stable income. For example, within equities, while it focuses on dividend income, the strategy can invest in high-quality companies with strong balance sheets set to benefit from long-term growth dynamics. Within fixed income, the strategy invests across investment grade, high yield, and convertible bonds for stable income and additional alpha.

The author is Kelly Chung, our investment director and head of Multi-Asset.

Award-winning manager and on-the-ground expertise

The strategy is managed by a dedicated multi-asset team led by Kelly Chung, Value Partners’ investment director and head of Multi-Asset. Chung leads the development of the company’s asset allocation platform and is in charge of its multi-asset strategy, with support from the investment team. She draws on the strength of Value Partners’ around 70 on-the-ground equities and fixed income investment professionals, each covering a specific area in the market.

Chung is an award-winning fund manager with more than 20 years of experience in multi-asset portfolio management. She joined Value Partners in 2016 as a senior fund manager to help establish the firm’s asset allocation platform. Since she joined, Chung was able to build Value Partners’ multi-asset franchise with an outperformance track record against peers. Chung has been recognised by the industry, with Value Partners being named as “Best Fund Provider for Multi-Asset Solution” by Asian Private Banker in December 2021.

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The views expressed are the views of Value Partners Hong Kong Limited only and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All material has been obtained from sources believed to be reliable as of the date of presentation, but its accuracy is not guaranteed. Investors should note investment involves risk. The price of units may go down as well as up and past performance is not indicative of future results. Information herein has been obtained from sources believed to be reliable but Value Partners Hong Kong Limited does not guarantee the accuracy or completeness of the information provided by third parties. This commentary has not been reviewed by the Securities and Futures Commission in Hong Kong. Issuer: Value Partners Hong Kong Limited.