18 Apr 2018
The world has never been more interconnected than it is today. For a few hundred pounds, you can fly to the other side of the world in a day, or stay at home and watch events in far-flung corners of the globe live on your mobile phone.
The theory of “the butterfly effect”, the idea that a relatively small event can reverberate across the world, has perhaps never been more valid given the speed at which ideas and news now flows across borders.
The butterfly effect in today’s world creates huge opportunities for investors but also leaves them vulnerable.
This was demonstrated more than a decade ago when increasing numbers of US homeowners began to default on their mortgages payments. Many of the mortgages had been bundled up and sold on to banks and investors around the world. Consequently, the crisis spread rapidly with financial institutions unwilling to lend to each other and households cutting back on consumption. Falling demand prompted international trade and inward investment to slump, allowing the virus to quickly infect the entire global economy.
The global financial crisis is a particularly dramatic example of the butterfly effect but, in truth, we see examples of the interconnectedness of financial markets every day and everywhere.
"75% of the FTSE 100 are overseas earners and nearly 25% are commodity companies"
Even if you focus your investments on the UK, you cannot expect to be insulated from global events. 75% of the FTSE 100 are overseas earners and nearly 25% are commodity companies. This means that events in far-flung corners of the world, such as North Korea, could impact UK shares via the dollar or commodity prices.
Our global approach allows us to make full use of the in-depth, in-house research produced by our expert analysts, economists, researchers and strategists. This feeds in to our ‘House View’ – our outlook for the global economy. Our ‘House View’ helps us identify potentially attractive asset classes from around the world and those we would prefer to avoid and so provides the foundation for our decisions.
"Our ‘House View’ helps us identify potentially attractive asset classes from around the world. [It is] the foundation for our decisions"
In a traditional multi-asset fund range approach, equities are seen as the riskiest asset class with the greatest potential for growth, while fixed income is typically used to lower the overall risk and alternatives move independently of either of them.
We believe this approach is no longer as effective as it used to be, since fixed income now covers a much wider range of investments and some are arguably potentially riskier than equities.
Instead, we categorise investments into the three buckets:
Each fund within the range has an allocation to these three buckets and they are then adjusted to reflect our current ‘House View’, so we can respond quickly to changing conditions and market opportunities.
Our approach aims to help investors sleep easier at night, safe in the knowledge that their money is invested in a balanced portfolio of global assets, which aims to be well placed to withstand the impact of unexpected events wherever they may occur.
KEY RISKS
The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency exchange rates. Investors may not get back the original amount invested.
These funds use derivatives; these can be complex and highly volatile. This means in unusual market conditions the funds may suffer significant losses.
These funds invest in emerging markets; these markets may be volatile and carry higher risk than developed markets.
Investors’ attention is drawn to the specific risk factors set out in each fund’s share class key investor information document (“KIID”) and Prospectus.
Important Information
For financial advisers only. This commentary is not an investment recommendation and should not be viewed as such. Except where stated as otherwise, the source of all information is Aviva Investors as at 31 December 2017. Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature.
The Aviva Investors Multi-asset Fund range comprises the Aviva Investors Multi-asset Fund I (“MAF I”), the Aviva Investors Multi-asset Fund II (“MAF II”), the Aviva Investors Multi-asset Fund III (“MAF III”), the Aviva Investors Multi-asset Fund IV (“MAF IV”) and the Aviva Investors Multi-asset Fund V (“MAF V”) (together the “Funds”). The Funds are sub-funds of the Aviva Investors Portfolio Funds ICVC. For further information please read the latest Key Investor Information Document and Supplementary Information Document. Copies of these documents and the Prospectus are available to download in English from our document library.
All rights vest in the relevant London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”) which owns the Index. “FTSE®” is a trade mark(s) of the relevant LSE Group company and is used by any other LSE Group company under license.