AMP Capital’s Debbie Alliston has been actively adjusting the asset allocation of the $62 billion multi-asset business through the pandemic after the downturn finally created the opportunity to make some money in credit markets.
While some of AMP’s peers have mainly stuck to investing at the fringes, the funds that Alliston oversees, turned bullish on investment-grade credit. She moved the allocation of the multi-asset funds to overweight after a few years of “being very underweight” credit at every part of the capital structure. Her team has also started buying high-yield bonds and bank loans.
“One of the first things we did was square up our investment-grade credit because the lesson we learned from the global financial crisis was that the US Federal Reserve will step in,” she said in an interview ahead of the Fiduciary Investors Digital Symposium. “This is what we had been waiting for, to feel that were being finally rewarded for investing in credit markets.”
The outbreak of the coronavirus initially triggered a liquidity crisis in the bond market and sent equities plunging more than 30 per cent from the peak in February despite moves by central banks to support the financial system. The US Federal Reserve pledged to make its treasury bond-buying program open-ended, while the Reserve Bank of Australia launched its own quantitative easing program for the first time.
“We feel that we are being rewarded for the level of risk in investment graded credit and the sector has got support,” the investment chief of the multi-asset business said.
And while Alliston’s team has also been buying high yield credit, moving the allocation to neutral from underweight, they have held off doing more until there is greater clarity on company defaults. They have also “done some work” on asset back security loans which provides equity funding to asset-backed or commercial-backed mortgage securities in a “fairly low-risk way,” she added.
“These are very interesting opportunities to play in,” Alliston said. “They offer high returns and while they do chew up illiquidity budgets and have a short term time frame, many people are now familiar with these from the GFC.”
Elsewhere, the multi-asset business has been broadly neutral on equities since the start of the year as news of the coronavirus started to trickle out of Wuhan. After speaking with colleagues in China and with AMP’s strategic partner, China Life, Alliston decided that the market had become complacent about the risks that the virus posed. So she reduced the funds’ overweight position in stocks and bought options on the German DAX Index, a benchmark exposed to Chinese trade.
“We sold some equity risk quite early on,” she said. “We wanted to de-risk as it was felt like there was a gigantic unknown situation that was unfolding.” And after moving to underweight, her team started to buy back equities again just before the market rebound. The allocation now sits at neutral.
After a flurry of investment activity in the first quarter, which also saw the multi-asset business sell some fixed-income assets to help fund currency hedge losses, Alliston has hit the pause button until there is further clarity on the economic fallout from the pandemic. She is also weighing whether to buy more put options, despite the higher cost, because of the risk that the market could retest the lows hit in March.
“We don’t know what company earnings will look like and that’s the problem,” Alliston said. “Liquidity is being supported, though monetary policy has seemed to have done its dash at least for now. Credit has come in a bit and we’ve reacted to it but now you have to pause. The pathway has become murkier again.”