M&G increased its position in Italy. The strategy for 2016

M&G investments increased the partnership with Fideuram – Intesa Sanpaolo PB. Fideuram and Sanpaolo Invest will distribute M&G’s funds to their clients. Astolfi: “In this market environment, multi-asset funds can be good solutions”

M&G Investments announced a new agreement to increase the parthership with Fideuram – Intesa Sanpaolo Private Banking. According to the new agreement, Fideuram and Sanpaolo Invest will distribute M&G’s funds to their clients. In particular, products will be available to 5,000 Sanpaolo Invest and Fideuram Financial Advisors, included fixed income funds and multi-asset funds. The past agreement was signed in 2013. Matteo Astolfi, Country Head of Italy in M&G Investments, said: “This agreement is part of our strategy of consolidation in the Italian market. For M&G, Italy is a very important market, with €14 billion of AuM in September 2015, in line with €14,2 billion of the end 2014, but up from 8,1 billion in December 2013”. Lmf International discussed future scenarios with Astolfi.

Astolfi, what is your 2016 general outlook? What are the top 5 factors to consider?
When we look back at 2015, the most striking feature was the return of market volatility, most notably in equities and emerging markets, but evident across most asset classes and regions.
We expect volatility to persist for some time yet, but short-term volatility does not always equal true risk, and often presents compelling opportunities for those with the emotional fortitude to take it on.
Geopolitical factors are likely to play a significant role next year, with the possibility that some that dominated the international scene in 2015, such as the Ukraine crisis and Grexit, could take centre stage again. It will also be important to look at the actions from central banks. Even a small surprise from them could trigger significant price action. 2016 could also see some competitive devaluations taking place. The Swiss National Bank, for example, last week made it clear again that it will intervene in the currency markets if needed. Another factor is represented by the earning per share data in the European and U.S. equity markets, where we can observe a big gap of valuations between the two markets, making European equities more appealing to us. Additionally, looking at the yields in equities and bonds, we cannot help but see an historically high gap between the two asset classes.
In this environment, however, perhaps the most important factor to consider is that we should not put too much emphasis on economic forecasting. We believe the most sensible thing to do is expect to be surprised, be mindful of what our fundamentals-based convictions are before volatility takes hold, and be ready to respond to the risks and opportunities presented once it does.

From an operative point of view, in this market environment, what strategy do you suggest to adopt?
From an operative point of view, considering the persistent volatility and the difficulty in finding sources of returns in the ‘traditional’ asset classes (eg. Italian govies for Italian investors), this is not the ideal time for ‘do-it-yourself’ investors. In this phase, it is very important to trust in the advice of professionals, like financial consultants and promoters, who can address investors to the most suitable investment solutions. We think multi-asset funds can be good solutions: they offer flexibility and the ability of fund managers and an investment team to move quickly to change the portfolio in order to seize the market opportunities. At M&G, we have a multi-asset range that can satisfy different types of investors: M&G Prudent Allocation, for example, is a fund designed for prudent, risk-adverse investors; we have also M&G Income Allocation that offers a monthly (or quarterly) coupon with the goal of increasing the invested capital in the long term. Then we have the ‘older’ M&G Dynamic Allocation, a flexible fund that can invest more in equity markets (until 60% of the portfolio). All the M&G multi-asset funds are managed with a behavioral finance approach that aims to exploit the market reactions driven by human emotions rather than economic fundamentals in order to find good investment opportunities.

About equity, in which areas (Europe, Us or Asia) do you see more upside growth and in which one do you see more risks? In addition, which sectors could grow and which could be penalized?
Our positive outlook for global growth means equities remain our favoured asset class overall from both a fundamental and valuation standpoint. Certainly, most equity markets are not as ‘cheap’ as they were two years ago but the significant equity risk premium remains the most compelling valuation signal today. We have to remember that this risk premium is because bonds are expensive, rather than because equities are cheap, and so we believe the prudent way to play this is to be neutral to slightly overweight equity, and underweight bonds. However, with the world so divided, it is vital to be selective within asset classes.
From a geographical point of view, we see a major division between Asia and Emerging Markets on one side and the US and Europe on the other. Asia and Emerging Markets are experiencing a clear slowdown. By contrast, the economic news coming out of the US and Europe continues to indicate robust recovery.
In our view, European and Japanese equity is priced for stronger prospective returns than US equity – although certain areas of the US market, such as Banks looked attractive, especially given the potential to perform well in a rising rate environment.

And what about emerging markets?
Although the situation in emerging markets represents genuine fundamental risk to certain regions, the extent to which it is likely to affect domestic demand in the developed world is, we believe, limited, certainly relative to the impact of a decline in the economy of a major developed country.
Some Emerging Market equity is also attractively priced, but the level of genuine fundamental risk means we are engaging with these assets more modestly.

Lastly, talking about bond market, is it better to invest in government or in corporate bond? In this second case, in which sector?
We believe mainstream government bonds, especially at the short-end, are generally overvalued, although we see some value at the longer end of the US curve. Nonetheless, we do expect yields to rise in 2016 and we are watchful for opportunities in this space.
For now, peripheral-European and select emerging market debt offers compelling levels of yield. We cannot see the sense in such a significant spread between peripheral and core yields in the Eurozone, between euro-denominated bonds supposedly backed by the same central bank. In terms of emerging market debt, we are mindful of genuine risks and potential sensitivity to US interest rate rises.