DIVERSE PERSPECTIVES
SHAPE ORIGINAL THINKING

MADELINE HO Executive Managing Director, Wholesale Fund Distribution, Asia Pacific, Natixis Investment Managers

New approaches for the new normal
After a long spell of easy money and buoyant markets that has bred a degree of complacency, the investment landscape stands on the cusp of a major shift – and investors will need to adjust strategies and portfolios to match. This was the key message to emerge from the recent Natixis Investment Forum in Singapore, attended by over 100 leading managers from a range of Natixis Investment Managers affiliates as well as wholesale, private banking and institutional investors.

Arguably the defining trend in investment of the past decade has been the rush into passive funds, which by last year accounted for 20% of assets under management, versus just 8% in 2007.¹ This shift may have made sense when a rising tide was effectively lifting all boats. But with the policy, geopolitical and even physical environment looking less stable, new questions are starting to arise, Madeline Ho, Executive Managing Director, Wholesale Fund Distribution Asia Pacific, of Natixis Investment Managers, pointed out in her introduction to the event. Namely, "Are we facing the reversal of the 35-year bond rally, the equity rally, low market volatility? Are we starting to see the beginning – of rising inflation, of asset correlation?"

As passive strategies can struggle to respond to the risks and opportunities generated by rapidly changing market conditions, and to meet evolving investor demands, the time has come for an approach that Natixis Investment Managers sums up as "active thinking." In the words of Fabrice Chemouny, Head of Asia Pacific at Natixis Investment Managers, this is characterised by a focus on delivering alpha, and, via Natixis's multi-affiliate model, access to a diversified suite of hands-on, specialist managers capable of delivering expertise that is "relevant to investors' specific needs," regardless of short-term developments or broad market movements.

MARINE DUVERGER Client Portfolio Manager, H2O Asset Management

Interest rates resurgent
Investor needs are changing due to the return since 2016 to rising interest rates, a development with a "lot of different consequences," noted Marine Duverger, Client Portfolio Manager at Natixis Investment Managers affiliate H²O Asset Management. While the pace of tightening in the United States and Europe is likely to remain muted, it will create opportunities for active managers to "capture interest rate differentials because of diverging monetary policies."

Many investors have responded to higher US rates by going long US Treasuries and short German bunds, but H²O has adopted precisely the opposite tack, believing despite nominally more attractive spreads Treasuries are less appealing when the costs of financing and yield curves are taken into account. "The absolute level of yields doesn't really matter; what really matters to fixed income investors is the relative shape of the yield curve," Ms. Duverger said.

NICOLAS JUST Deputy Chief Executive Officer, Chief Investment Officer, Seeyond

Assessing volatility signals
Similarly contrarian views were expressed by Nicolas Just, Deputy Chief Executive Officer, Chief Investment Officer at Natixis Investment Managers affiliate Seeyond, who told that while investors tend to focus on volatility, this is no longer the best gauge of risk in the equity markets. What matters more is the volatility of correlations, or the degree to which various stocks or investment factors, such as value and momentum, move in tandem. With correlations between cyclical and defensive stocks in Europe reaching levels not seen since the collapse of the Internet bubble, markets may be more fragile than they appear.

A minimum volatility strategy can provide a measure of protection in such an environment. By emphasising high-value stocks with limited correlation to the overall market and a track record of solid dividends, investors can create a portfolio that is capable of outperformance even in downturns, and that sustains value over the long term by avoiding snap decisions that attempt to 'time' the market.

"The positive influence of central banks in the markets in the US, Europe and Asia is starting to fade away, so we have to be more protected against short and long-term crashes," Mr. Just explained. "This portfolio is more ready than others to navigate through what will happen undoubtedly over the next two to three years when it comes to central banks."

HOLLIE BRIGGS, VP, Product Manager, Loomis Sayles & Company

In a less stable environment all eyes tend to be on risks – but experts at the forum pointed out active thinking also means being able to zero in on opportunities, especially where they may not be immediately apparent or when fear rules the markets.

For Hollie Briggs, VP and Product Manager at Natixis Investment Managers affiliate Loomis, Sayles and Company, this means concentrating on long-term structural generators of value rather than valuations, or geopolitical ripples like the latest tweet from US President Donald Trump.

"It's not our job to forecast these events," she said. "It's our job to identify companies whose structural, secular drivers are stronger than these temporary headwinds and stay focused on the long-term opportunities. We are concerned only with valuations of companies in terms of being able to buy them at a discount to intrinsic value."

Through this approach Loomis Sayles has assembled a "library" of companies with strong competitive advantages in industries that still have ample room for growth, such as e-commerce, and buys into them at optimal price points.

JENS PEERS Chief Investment Officer, Mirova

Another area of significant potential is investments that deliver on sustainability, as well as financial goals. The surge of interest in environmental, social and governance (ESG) investing is much more than a fad, according to Jens Peers, Chief Investment Officer at Mirova, a Natixis Investment Managers affiliate dedicated exclusively to ESG investment. There is a growing recognition that ESG and financial performance are inextricably linked, and that portfolios that disregard ESG factors are more exposed to risk.

Eventually, "everybody's going to look at ESG factors as part of decision-making; it's happening already," he told a panel on ESG investment trends. As environmental challenges grow, there will be "huge opportunities" in companies developing innovative solutions in fields like renewable energy and water recycling.

"It's just common sense. It's not just trying to do good in the world; it's offering a solution for a real environmental and social problem from which you can make money and mitigate risks properly," Mr. Peers explained. He noted Mirova's track record of outperformance is a result of, not despite, its ESG focus. In other words, to answer the question that faced the panel – it is possible to "do good" while "doing well."

Participants at the forum made it clear that finding compelling investments, and building robust portfolios capable of delivering long-term performance, will remain possible even in a post 'easy money' era – especially in Asia, which, as Mr. Chemouny noted, is the new epicentre of global growth. However, performance may not come as easily as it did in the past, and is likely to require more active, tailored and flexible investment strategies that are not afraid to challenge conventional market wisdom – a demand that Natixis's multi-affiliate model is perfectly positioned to address.


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¹ bis.org/publ/qtrpdf/r_qt1803j.htm