Asset Allocations for a Global Go-Anywhere Portfolio

Morningstar Investment Services' Marta Norton on the case for and allocations behind the team's global portfolio.

Asset Allocations for a Global Go-Anywhere Portfolio Christine Benz: Hi I’m Christine Benz for Morningstar.com. It’s international week on Morningstar.com so we thought it would be helpful to sit down and talk about how Morningstar’s investments services team puts together it’s global allocation portfolio. Here to discuss that is Marta Norton. She’s an investment manager with Morning star investment services. Marta thanks so much for being here. Marta Norton: My pleasure. Christine: So you run this, you help run this global allocation portfolio I want to talk first about what is the case for putting together a go anywhere global allocation portfolio like this one. Marta: Sure well the reason’s most often sited in the market place and the reasons that make a lot of sense is really the diversification that you get when you have another country and a portfolio and the fact that you’re really widening your opportunities you know you have great companies that aren’t listed necessarily in the US and maybe in Europe or other places people traditionally seek so this portfolio allows you to access those companies but going beyond that when we were putting together this portfolio we really thinking how we individually think about managing money and it really isn’t target specific corner of style backs or managed to a bench mark that’s much more absolute. You know we want to compound wealth and we thought having a portfolio where we could really go anywhere would help do that because it wouldn’t’ be tied to maybe stay large cap equity when large cap equity is out of favor. Christine: So the baseline asset allocation is 64/40 stock bond but you really do have a lot of leeway, you can take you stock position anywhere from 20 to 80% and do the same with the fixed income allocation. So it does have a technical element let’s talk about hw you adjust tactically and also I’m curious to get your take on the evidence about tactical investing and why you think that tactical is the way to go with at least a portion of this portfolio? Marta: Sure well we certainly structure the portfolio for maximum flexibility and we want that flexibility on two ends. We want to be able to make nay adjustments we see necessary and we also want to managers to go where they see the best opportunities right because that was really the driving thrust of the portfolio so when we think about tactical we’re not thinking you know going 100% to cash or being a new top performing asset class every year. We think of it more as finding the right fundamentals and finding the right evaluations. So when we’re evaluating asset classes we’re thinking of those two criteria and then largely speaking that’s what are our mangers are thinking about too. I think it comes down to how you define tactical if you think tactical is going all to cash and being in that half performing asset class this isn’t really bad but it is something we’re taking advantage of different opportunities in the market place. Christine: So if you for example have a manager who you really like who isn’t finding anything to buy and here she takes the portfolio to 30% cash as residual that bottom up approach you don’t worry about it too much. Marta: Right we certainly have managers who had that kind of flexibility and actually you cash in it of itself as an asset class and so they would move to cash if they thought it was more attractive than other areas. Christine: Okay so I want to focus on the international piece of this portfolio a little bit. Emerging markets in particular is you know there’s been this stampede of investor assets into emerging markets. But when I look across this portfolio it looks like you’re actually a little bit light there but you do have a lot of non-dollar exposure elsewhere. Let’s talk about how your position from that standpoint? Marta: Sure well we would be the first to agree that emerging markets have a fantastic secular story behind them and a lot of people are pointing out and we agreed that they are far healthier than a lot of the developed nations so if that were the only criteria we would be you know all emerging market but it really comes down to evaluation. There’s a lot of great research out there that shows attractive economies you know fast growing economies don’t necessarily translate into a attractive asset class or security price performance. So we want to make sure we’re getting in on the right price and on emerging equity side we don’t think it’s flashing red but we certainly don’t think it’s a buying opportunity or at least you know very cheap so we’re lighter there and we’re getting a lot of our emerging exposure on the equity side actually through companies that are either domicile and US or in Europe that sell to emerging markets and we think that’s a way to participate in the growth there without paying high prices but then on the fixed income side evaluations are more attractive for one particularly on a relative basis if you think I were treasuries are were a lot of healthy corporate US funds are a lot of what we see in emerging market sis offering us a better bank for a buck and their health and their economy is not so appealing too. And we also want to diversify a little bit more away from the dollar and we don’t’ want to be so tied to the dollar when we see some really fears secular head winds heading you know in that direction so we want to kind of get exposure to countries that are a little bit healthier. So that would be emerging markets, bonds and some developed markets bonds as well. That’s more on the emerging market side actually there are global bond manager who can go anywhere in the world has some exposure to Norway, to Sweden but also has a lot of exposure in the emerging markets and is avoiding some of the big name countries that everybody thinks are necessary in a global bond portfolio. Christine: Okay so also in the realm of go anywhere investing. You’ve got this alternative and I know for a lot of investors they grapple with but with but what goes into an alternatives component of a portfolio. Let’s talk about your thinking there? Marta: So as you pointed out earlier it’s a generic split for this portfolio, 60/40 stock bonds but really we structured it that way so that we wouldn’t have to own nayother asset class. We didn’t think they were attractive but if they were we could add them to the portfolio and that’s the case with alternatives. Really we see them as a volatility dampener similar to bonds but without all the interest rate risk and of course you’re going to have to relieve that alternative so you’re not going to one sell and yield long shorter alternative. Fund into the portfolio. Christine: Already made off. Marta: Right. Christine: Investment, no? Marta: You certainly had to do your due diligence but the funds that we have we think they’re pretty good at what they do they’ve been doing it for a long time. They’re cheaper than others and we think they provide that you know smoother ride that we’re looking for. Christine: Can you provide some examples of the types of alternatives that you use to think you can provide that attractive diverse reward propfile? Marta: Well first it really comes down to manager expertise. It doesn’t matter what alternative you are if you can’t execute that’s going to be a big red flag to begin with but in terms of what types of alternatives we use in this portfolio it’s a fun to fund so it has a lot of different types of strategies within its own portfolio and that provides a lot of diversification benefits but we also like you know convertible arbitrage strategies. We like long short strategies although often times investors forget that these still have a great deal of equity exposures so they’re not a complete hedge against the market and we have a host of others. Even a credit arbitrage fund on the fixed income side and so were pretty minded as long as we think that there’s a rational behind the mandate and a manager who is responsible and knows what he’s doing. Christine: Okay well thank you Marta thanks for sharing your insights into this whole area of global allocation very helpful. Marta: Sure thanks for having me. Christine: Thanks for watching I’m Christine Benz for Morningstar.com