Having an element of top-down analysis, a ‘big picture' view of the global economy and of how asset classes react in it, will be crucial to investing funds successfully over the coming years.
Having an element of top-down analysis, a ‘big picture’ view of the global economy and of how asset classes react in it, will be crucial to investing funds successfully over the coming years.
This was the central message in November from independent analysts Fitch, who warned in their prognosis for fund management that traditional, fundamental, bottom-up investing will not be enough in future.
“Managers need to develop thematic, sector and country views which requires developing a new mindset, or hiring staff with more macro backgrounds,” the analysts said.
Macro factors, politicians and their decisions generally had a larger effect than underlying entities on the relative performance of asset classes since 2008. Few practitioners expect this to change soon.
At the fund of funds level, Franklin Templeton’s $30bn multi-asset investment unit, led by CIO Brent Smith, already includes a large element of top-down analysis in its investment process.
Franklin Templeton formed the unit in 2007 to unify, under one investment process and philosophy, its various multi-asset groups.
Multi-asset strategies have actually been run at what is one of the world’s top 10 diversified asset managers for 25 years, even though Franklin Templeton has perhaps been better known for its emerging markets expertise under Mark Mobius, and its fixed income management.
Nevertheless, the unit’s 24 members run 87 off-the-shelf multi-asset funds, plus separately structured mandates for individual clients in regions like Eastern Europe and Italy. Some strategies target returns, others aim for specific volatility and risk levels, or focus on specific geographies.
Matthias Hoppe (pictured), Frankfurt-based vice president and portfolio manager with Franklin Templeton’s Multi-Asset Strategies (FTMAS) group, says: “We believe that markets have been very macro-driven, and driven by newsflow, more than by fundamentals. This year news flow has simply overridden the fundamentals.”
Various studies from investment banks in 2010 had implicitly supported this, by finding less than 10% of a stock price move was because of characteristics of the company.