Battistini (Allianz Global Investors): “The multi-asset portfolio can return to being one of the pillars of Italian managed savings”

The balanced portfolio he is an old acquaintance of the managed savings of our country and it is Filippo BattistiniHead of Business Development Retail Wholesale Italy of Allianz Global Investors, to explain the reason for this Italian predilection and what differentiates us from the rest of Europe. “The 60/40 or, even more so, 70/30 portfolio – 70% bonds and 30% stocks – has been a pillar of the asset management industry in our country, offering investors a diversified and relatively attractive investment strategy. Unlike Anglo-Saxon countries where an ‘asset allocation driven’ approach prevails, i.e. based on the individual choice of assets by end investors or financial advisors, in Italy and Germany a ‘product driven’ approach is more common, where the construction of the portfolio is mainly delegated to the management companies”.

In recent years this strategy has gone into crisis, we have witnessed strong redemptions by investors. Why?

“First of all, the strong corrections recorded during 2022 by almost all asset classes, together with rate rises, have led to a return of investor interest in administered savings, in particular BTPs, at the expense of managed savings and multi-asset funds. Another reason is certainly linked to the positive correlation between stocks and bonds triggered by the inflationary shock, which for a period took the place of the traditional negative correlation, compromising the portfolio’s ability to diversify risks”.

Is the time for balanced portfolios over?

“On the contrary, we are convinced that ideal conditions have been created to return to investing in balanced portfolios”.

What has changed?

“Yield has finally returned to the bond market, which is one of the three key factors that push investors towards bonds, together with diversification and decorrelation, and which provides a sort of protection capable of mitigating the effects of volatility. On the equity front there has been a recovery, even if a situation of concentration has been created, especially in the sector – think of the weight of big tech – which must be managed with caution and with careful diversification. But above all there are positive signs from the point of view of the decorrelation between the two asset classes: studies show that the inverse correlation between the two asset classes tends to restore itself when inflation falls below 3.5%, an encouraging development given the trend of recent months. Less uncertainty about the inflationary trend and a more accommodating monetary policy also strengthen this virtuous relationship between stocks and bonds. More generally, we expect greater performance dispersion across regions, asset classes and sectors in the coming months, due to the divergence of the economic and monetary outlook. In this scenario, traditional decorrelations return to prevail, an aspect that plays in favor of multi-asset investments”.

With what other types of assets should a balanced portfolio be integrated to adapt it to this context?

“We call them the ‘guardians of diversification.’ The first is gold: in addition to having a low correlation with other investments, it is immune to credit and counterparty risk, and is favored by the current geopolitical dynamic, with the central banks of blocs such as China and Russia purchasing the yellow metal in large quantities to free ourselves from the dollar. The second ‘gatekeeper’ is the private markets, another source of diversification and decorrelation from traditional markets. If the traditional formula of the balanced portfolio is strengthened, also enriching it with these two components, a series of benefits can be obtained in terms of reduction of volatility and drawdowns and greater expected returns. The multi-asset portfolio can truly return to being one of the pillars of Italian managed savings.”

In terms of investment choices where do you see the most interesting opportunities at the moment and which areas and sectors are you focusing on?

“Our multi-asset managers view equities with moderate optimism, but from a tactical perspective they prefer the American and Japanese markets. At a sector level we favor energy, banks and commodities. In the bond component, we favor high-quality government bonds and corporate issues with a short to medium duration. Finally, to protect the portfolio from sudden market fluctuations it is also interesting to use strategies based on options, short positions, liquid alternative instruments and, as mentioned, private markets and gold”