Investment Clock insights

MAST: navigating volatility and capturing upside


Trevor Greetham 

25 November 2019

The Multi Asset Strategies Fund (MAST) has delivered on its objectives over the first year, returning a little over 5% net of fees since the 23 November 2018 inception, with peak to trough losses of less than 4% during the sharp setback in markets in December 2018 (figure 1). Our logical and transparent investment process has resonated with institutions and the fund has grown to almost £200 million in size.
Figure 1: MAST performance since inception 

The Multi Asset Strategies Fund (MAST) has delivered on its objectives over the first year, returning a little over 5% net of fees since the 23 November 2018 inception, with peak to trough losses of less than 4% during the sharp setback in markets in December 2018 (figure 1). Our logical and transparent investment process has resonated with institutions and the fund has grown to almost £200 million in size.

Figure 1: MAST performance since inception 

Source: RLAM as at 22 November 2019. Past performance is not necessarily a reliable indicator of future performance. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested.

MAST is a multi asset fund designed to capture upside in positive market trends while limiting downside risk by shifting to a more tactical approach when markets are expensive or volatile. We manage MAST in a similar way to the Global Multi Asset Portfolios (GMAPs) that launched in March 2016, but with three important differences. 

1. MAST is a single fund solution, not a risk-rated range. It has a performance-related objective to seek excess returns over cash (SONIA) of 4% a year on a five year rolling basis.

2. We only include liquid assets in the core portfolio, allowing us to limit downside risk by reducing equity exposure when markets are volatile.

3. We aim to exploit opportunities irrespective of market direction through our Investment Clock approach but size tactical positions with the overall return target in mind.

Our style of tactical asset allocation tends to add more value going into and around recessions when downside risk is at its highest, whereas the core portfolio is designed to add more value in bull markets. Our aim in combining these two sources of return is to generate an asymmetric return profile, skewed to the upside. A historical simulation of MAST since 1995 suggests it would have been possible to capture about half of the upside in equity bull markets while moving broadly sideways in bear markets (figure 2).

Figure 2: MAST Simulation: Capturing Upside with Limited Downside

Source: RLAM. For illustrative purposes only. Data from 1995 Q2 to 2019 Q3 using simulated returns prior to the MAST inception date of November 2018. Net of estimated transaction costs. The above table contains simulated performance data. Simulated data or historical data are not a guide to future performance. Correlation based on quarterly returns versus FTSE All World Total Return Index (£).

The two return sources demonstrated their complementary nature early this year. A sharp rise in market volatility meant we were starting to trim equity exposure in the core portfolio. However, the investment sentiment indicator we monitor was flashing a strong contrarian buy signal and the separate risk budget we reserve for tactical asset allocation allowed us to buy the dip with conviction. As a result, we were able to capture significant upside as the US Federal Reserve shifted towards cutting interest rates, a change anticipated by our Investment Clock model.

We remain positively positioned on equities going into 2020. Volatility is low and global growth looks set to pick up on the back of looser monetary policy. If we’re right, a fully invested core portfolio and a positive tactical view should provide a solid basis to generate returns in a new manufacturing cycle upswing. If we’re wrong, volatility will return and MAST will end up leaning more heavily on a tactical approach that proved its mettle in the financial crisis a decade ago.

Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations.