Wealth managers’ alternatives exposure reaches record high in 2017

By Daniel Lanyon on Thursday 15 June 2017

Alternative Lending

The 7IM team says low bond yields, political turmoil and hunt for defensive strategies that don’t travel in same direction as the mainstream.

The 7IM team says low bond yields, political turmoil and hunt for defensive strategies that don’t travel in same direction as the mainstream.

Seven Investment Management (7IM) has increased its exposure to alternative strategies to the firm’s highest ever levels as it seeks defensive returns away from traditional fixed income and equities.

The firm, which manages more than £11bn of assets, says the hunt for uncorrelated strategies has been in response to high stock market valuations, low bond yields and concerns about political instability, fulfilled by last week’s hung parliament election result.

This has prompted its investment management team to look to new strategies, for example, the £1.6bn 7IM AAP Balanced fund has seen alternative strategies exposure increase from 2.5 per cent at the start of 2016, moving to 5.5 per cent a year ago, and up to 8 per cent in May 2017.

The previous peak was 7 per cent in October 2011 during the Eurozone crisis and US debt ceiling crisis.

7IM’s move follows a key trend. Last week’s European Asset Allocation Survey by Mercer showed pension funds raising their exposure to alternatives, amid expectations of tougher times ahead for financial markets. 

Damian Barry, Senior Investment Manager, 7IM, said: “We have always been able to find interesting opportunities in the alternatives space and it continues to offer up options that are attractive in the current conditions.

Last week’s hung parliament suggests plenty more political turmoil lies ahead, vindicating our effort to search out regulated and liquid strategies that don’t travel in the same direction as mainstream financial markets and are not so susceptible to negative political and economic events.

“We want our funds to offer private investors the same diversification options available to institutional investors, as well as the more traditional asset classes. Choosing the right alternative vehicle is key and we are looking at alternatives through the lens of defensive positioning.”

“The challenge is that there is a huge array of investment strategies to choose from and many come with complicated portfolio construction. We believe that having a large and experienced investment team helps us pinpoint the best funds.”

A number of the funds have exposure to UK Mortgages, a closed ended investment company in the Sector Specialist: Debt sector. This is a fund which 7IM has supported since launch two years ago, with Alex Scott, Deputy CIO, 7IM pointing out that the company “has paid out a decent income along the way, offers a unique and robust strategy and offers lots of potential – having built up an attractive portfolio of assets over the last year or so, and secured very cheap debt against its assets.” 

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