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Which asset classes are catching these Elite Rated multi-asset managers’ eyes this Valentine’s Day?

February the 14th. Excitedly anticipated by some, dreaded by others.

When it comes to investments, our relationships can be long-term or short-lived too. They can even be volatile: experiencing euphoria one minute followed by despair another.

FundCalibre asked a selection of Elite Rated multi-asset managers which asset classes are catching their eye this Valentine’s Day, and which are suffering from unrequited love.

Investments they’ve fallen in love with

The team behind the Close Managed Income fund, is going steady with music royalties.

“We first invested in music royalties in 2020 and added to our holding in 2021,” they told us. “This gives us access to an income stream from more than 150,000 songs, across all music genres, and with new areas like streaming or placement in films and commercials, potential for capital upside too.

“One of the big benefits of this area is that it is genuinely uncorrelated to market movements – we play music when we are happy or when we are sad, when we are in love or have just been dumped.”

Kelly Prior, investment manager in the multi-manager team behind BMO MM Navigator Distribution is swiping right for Absolute Return funds (and in particular market neutral strategies).

“The devil is in the detail for this asset class,” she said. “We have come a long way from the time when long-only managers tried their hands at a bit of shorting and then suffered the pain of covering positions that they had got wrong.

“Market neutral strategies – while often unspectacular – can smooth returns for a broader portfolio in more volatile times if done well.”

Commodities have caught the attention of David Coombs, manager of Rathbone Strategic Growth Portfolio.

“We believe inflation fears will remain elevated in the first half of this year and maybe longer if a more virulent strain of COVID were to materialise,” he said. “In order to mitigate both inflation and geopolitical risk, we think an exposure to more economically sensitive commodities makes sense, industrial metals, energy and agricultural.”

The managers of Ninety One Global Income Opportunities, are attracted to sustainable dividends.

“Over the long run, owning equities with an above average, resilient dividend yield has resulted in similar performance to broad equity indices but with less drawdown and volatility,” they explained.

“The narrowness of markets over the last two years, when high-growth equities have dominated, has left sustainable-dividend stocks attractively valued whilst also possessing the ability to grow income – a valuable trait at a time of heightened inflation.”

Investments they’d rather live without

The Jupiter Merlin team has recently dumped Chinese equities.

“If you feel like you are becoming increasingly less of a priority, then it is probably time to move on – as it was for the Jupiter Merlin Portfolios with our exposure to Chinese equities,” the managers said.

“We have had concerns for some time about investing in China and, as their communist ideology has firmed, we now believe that the interests of minority investors in Chinese companies are well down the pecking order for the State and, by extension, companies which have to adhere to their rules. Partners who prioritise transparency, clarity and shared goals are best sought elsewhere.”

Kelly Prior, investment manager in the multi-manager team behind BMO MM Navigator Distribution is unimpressed by crypto.

“I don’t believe in investing clients’ money in an asset if I can’t see a path to its worth,” she said. “When people think of crypto, they think ‘Bitcoin’, but it’s much wider than that with over 13,000 different crypto currencies and a total market cap of around $2 trillion (but this could be very different by the time you’re reading this given the volatility).

“I have little to offer in original analysis, and have yet to read anything, or had explained to me, how these assets are good investments. Just because someone’s dog-owner friend made a mint, doesn’t mean my clients are going to do the same.”

David Coombs, manager of Rathbone Strategic Growth Portfolio is also swiping left on emerging market debt.

“Emerging market debt forms part of our equity risk allocation,” David explained. “Following the recent sell-off in higher growth areas of the US equity market, we prefer to use our risk budget to take advantage of this volatility, which should provide superior returns to those we can see from emerging market debt in a rising US interest rate environment.”

The managers of Ninety One Global Income Opportunities are over infrastructure.

“The theory of infrastructure is appealing: an income driven return with low equity sensitivity,” they said. “Their performance during the big market drawdowns of the last 10 years, however, has shown the asset class’ fragility caused by concentrated holdings registers, reduced liquidity and underlying exposures with greater economic sensitivity as public-private partnerships have dried up. We think there are better ways to achieve the desired return profile.”

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