A timely call to switch out of long-dated sovereign bonds and into private credit was MLC chief investment officer Jonathan Armitage’s best call of 2016.
Global politics have played havoc with investment strategies over the last 12 months, a trend set to continue in 2017. Armitage says success in the year ahead will be all about diversification.
As MLC’s chief investment officer, Armitage is responsible for more than $100 billion in funds under management. He is a finalist for the coveted CIO of the Year Award in the Conexus Financial Superannuation Awards 2017.
National Australia Bank’s wealth-management arm, which owns MLC and Plum, is also nominated in three other categories: Best Insurance Offering, Member Services Fund of the Year, and Best Technology Offering.
Investment Magazine will feature Q&As with all the finalists, ahead of the winners being revealed at the awards dinner in Sydney on March 9.
Here, Armitage reflects on the demanding market outlook.
IM: What was your biggest challenge over the past year?
JA: The rise of political risk. Both Brexit and the US presidential election [created] even greater challenges in an already extremely difficult investment environment. Given stretched valuations in bond and equity markets, portfolio diversification became a challenge.
What proved to be your best call in 2016?
Being underweight long duration in our bond portfolios and overweight selective credit exposures proved beneficial during the latter part of 2016.
American, European and Australian government bond yields were extraordinarily overvalued, considering economic activity and inflation expectations. We were early on our decision to go underweight long-duration sovereign bonds, which caused some angst in the middle of 2016, but the sharp rise in government bond yields at the end of the year was a welcome justification of our disciplined investment process.
Many of the challenges we saw in 2016 will continue this year.
The direction of corporate profitability in the US and elsewhere will be subject to a number of different forces, which makes forecasting unusually challenging. The direction of government policy will also be interesting, with a new administration in the US, presidential elections in France and the evolution of UK policy regarding Brexit.
Diversification in portfolios will also be an area of focus, with a clear question around whether the recent moves in bond markets, especially in the US, are temporary or reflect a more permanent shift in valuations.
The winners of the Conexus Financial Superannuation Awards 2017 will be unveiled at a black-tie event at the Ivy, Sydney, on March 9, supported by Vanguard and AIA Australia. You can purchase single tickets or tables for 10 by visiting the event website. The Conexus Financial Superannuation Awards proudly support The Wayside Chapel.