The great rotation everyone has been talking about for many years is not from fixed income to equity but from fixed income to multi-asset, says Steve Kenny, director of wholesale at Kames Capital.
“I have been in the game for a long time now and it looks like people are moving back to what used to be called ‘managed funds’ – the classic mix of property, fixed income and equities.“ However, it can now include a spectrum of alternatives, from aircraft leasing, windfarms, alternative energy sources to infrastructure, which throws off a decent yield.”
Kames Capital’s multi-asset vehicle runs with an income tilt, and one thing the market cannot get enough of at the moment is income. As Kenny puts it: “Anything that throws off a decent yield is like manna from heaven for investors.”
As well as focusing on income, Kames has a focus on multi-asset and absolute return. The absolute return funds are all linked to the cash rate. Their suite of cash-plus vehicles includes cash plus 1%, cash plus 2%, cash plus 4% and cash plus 8%. The majority of people who are buying those funds are either using it as a bedrock for a modest return portfolio or in an absolute return fund of funds.
“The cash plus 8% is bought by a more sophisticated, risk-alive investor; the top end fund-of-fund guys,” says Kenny. “It acts as a kicker for a fund of funds that has a modest underlying base.” For whatever reason they are bought, they serve a rather useful dual purpose for Kames, which traditionally has been seen mostly as a fixed-income house.
“Ultimately, multi-asset still has a bedrock of fixed income but it brings to clients’ attention that we have an equity component that works. It acts as a showcase of our other capabilities for our clients.”
These outcome-based vehicles have seen a big flood of interest and assets, and many in the industry have been surprised by their widespread success, even within Kames.
“When we launched our absolute return bond fund, we went to our sales team three and a half years ago and told them we were targeting cash plus two and a half. They laughed at me and said: ‘We’re not going to be able to sell that. Nobody will buy that. Cash plus two and half is a joke.’ And yet here we are, it’s taken €2.5bn and we’ve soft-closed it.”
So what has changed? Increased volatility in the market combined with negative returns in terms of bank rates across Europe, according to Kenny.“If clients want to allocate to cash, people find it incredibly difficult to find banks that are willing to take it. They don’t want it at all. Basel II requirements in terms of capital they need to allocate when they take short-term cash are such that it ends up being a loss-making proposition.”