How to Tap Into the Global Recovery

VIDEO: Paul Niven, manager of the BMO Universal Balanced Fund, talks risk, recovery and the importance of diversification

Holly Black 10 February, 2021 | 10:55AM
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Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Paul Niven. He is Manager of the BMO Universal Balanced Fund. Hello.

Paul Niven: Hello, Holly.

Black: So, Paul, do you want to tell us briefly what the fund does?

Niven: So, BMO Universal Balanced Fund is part of our broader range of low-cost multi-asset products which we run. Each of those funds essentially has a risk target and we look to deliver a CPI-plus outcome over the longer term for investors. So, basically, what that means is, we invest in a range of underlying assets, equities and fixed income.

Black: So, it's this word balanced that I find interesting at the moment because it's the super star growth stocks that are getting all the attention, and I think it can be easy to forget about the importance of balance in a portfolio. So, how are you thinking about that at the moment?

Niven: Well, it's a really good question. Markets have become increasingly concentrated, obviously particularly in global equities where the US is obviously dominant and disruptive tech within the US is dominant in terms of market weight. From a broader portfolio perspective, our view is that having a multi-asset approach is helpful in terms of smoothing returns for investors as well as equities providing the growth component. We do have exposure to credit and government bonds on the portfolio for diversification and return perspectives, and that provides balance to our core growth asset holdings. And within equities, we have a diversified approach in terms of our geographic exposure, number of holdings as sectors and themes that we have exposure to as well. So, balance I think is absolutely important.

Black: And what are some of those most important themes to you at the moment?

Niven: Our view is that after some of the worst downturns in generations in terms of the global economy, we are going to see a pretty brisk return to growth later this year. In fact, most, if not all, of that lost output in the US will be recovered by the end of this year, maybe early next. Now, that growth momentum should increase as we progress through the year. And our view is that risk assets are supported by improving prospects for earnings but also a very favourable backdrop in terms of policy, interest rates and liquidity. And our view is that the largest that we've seen from a fiscal perspective is likely to mean that real yields are depressed for an extended period of time. So, while all assets look relatively expensive at the present time, our view is actually fixed income will remain expensive and equities will remain pretty well supported by better growth momentum and low real yields or negative real yields for a sustained period of time.

Black: So, we talked about the importance of diversification and owning different assets. What do you think of this interest at the moment in more alternative assets, things like property, gold and dare I even say it, cryptocurrency?

Niven: Yeah, again it's a really interesting question. I think it's a huge challenge for multi-asset investors looking at traditional 60-40 type of portfolio and thinking about where is the return going to come from and where is the diversification going to come from. And naturally, there is a temptation to look into alternatives. For the Universal Balanced Fund, this is our low-cost multi-asset solution. So, we're about 29 basis points ongoing charge cap on that fund and that frankly prevents investment into some of those more traditional – sorry – some of those more expensive and less liquid alternative areas.

But what I would say is that one has to be somewhat circumspect in certain alternatives that they will actually provide the diversification benefit that one expects at the time that it is required. There are a limited number of drivers of asset returns. And while there have been a proliferation of alternatives, actually, in many instances what we found is that during periods of stress as liquidity tightens that actually correlations rise and some of these diversifiers don't necessarily give you the returns or the diversification that one would expect. Our view is that with this low-cost multi-asset range in the Universal Balanced we can continue to hit the risk and return objectives that we set out to when we launched this product range three-and-a-half years ago.

Black: Paul, thank you so much for your time. For Morningstar, I'm Holly Black.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Holly Black  is Senior Editor,


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