Bond markets reacted with another substantial lurch down, taking yields across most government bonds up by 100bps or more from end July levels, to the highest since before the Global Financial Crisis . This caps one of the most extraordinary years ever for bond markets. This year’s returns have been by far the worst and have been no better than equity markets. This has undermined the performance of the traditional balanced portfolio, the typical 60/40 equity/bond split, and raises questions about more broadly diversified global multi-asset portfolios, with diversification seemingly of little benefit when nearly all asset classes have been under pressure.
However, we do not believe that the case for multi-asset global diversification has been diminished. By virtue of not being tied to one single asset class or to a restricted investible universe, multi-asset funds can take advantage of various regional, sectorial, currency, asset, and manager opportunities.
The strongest advantage of multi-asset funds is their much larger investible universe and their ability to invest wherever there are hidden opportunities or lower risks, helping to manage the drawdown and capture the upside. Patience, a longer-term perspective, and sensible diversification are invaluable at times like this, to avoid missing out on the early fruits of that recovery.
The chart below shows the net performance track records over the past 10 years of two of our US-focused multi-asset portfolios, namely the Harmony US Dollar Balanced and Growth portfolios, that target an average return respectively of 3% and 4% above US Dollar cash. Despite the negative performance this year, both funds remain well aligned with their long-term target outcomes and we believe the next decade should provide a comparable journey to our investors.
The message is clear: the best strategy when times are dire and sentiment is low is to stay invested and rely on globally diversified portfolios to navigate through volatile markets and capture the recovery that inevitably starts when hopes are at their lowest.
Source: Momentum Global Investment Management, JP Morgan Bank (Luxembourg) S.A., Bloomberg Finance L.P., Morningstar, Lipper Hindsight. Performance to August 2022.
For more information on our Harmony Portfolios visit Harmony Portfolios | Momentum
Important Information – Prior to investing, investors should read the Key Investor Information Document (KIID) and seek professional investment advice where appropriate. KIIDs and the Prospectus are available in English at momentum.co.uk. Harmony Portfolios are sub-funds of the Momentum Global Funds SICAV, which is domiciled in Luxembourg and regulated by the Commission de Surveillance du Secteur Financier. The fund conforms to the requirements of the European UCITS Directive. MGIM (Company Registration No. 3733094) has its registered office at The Rex Building, 62 Queen Street, London EC4R 1EB. MGIM is authorised and regulated by the Financial Conduct Authority in the United Kingdom (registration no.232357).