To view an infographic on the First State Diversified Growth Fund investment process click here.
There is always a significant range in terms of the correlation between assets. If you look at the three-year rolling correlation between bonds, correlation goes as high as 0.8% and as low as -0.7%. The average may be 0.1 – and look like low correlation – but this ignores changes based on market dynamics.
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As such, during the global financial crisis, bonds proved a good diversifier for equities. Since then, central banks reduced their overnight borrowing rates significantly. There was an uplift for financial assets in the end, but there is now not as much room for them to repeat this performance. Today, the market environment is very different. It is difficult to see financial assets behaving in the same way again.
A more dynamic approach takes into account how assets behave when combined together. We make an assessment of the valuation – what we are paying for the asset, what income we expect to receive. In an environment where we are being paid less income for holding a bond, will that income still provide an offset in adverse market conditions? We believe this type of approach works better to create a consistently diversified portfolio, which adapts to different market conditions.
To see the top ten questions we get asked about the First State Diversified Growth Fundclick here.
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This document has been prepared for informational purposes only and is only intended to provide a summary of the subject matter covered and does not purport to be comprehensive. The views expressed are the views of the writer at the time of issue and may change over time. It does not constitute investment advice and/or a recommendation and should not be used as the basis of any investment decision. This document is not an offer document and does not constitute an offer or invitation or investment recommendation to distribute or purchase securities, shares, units or other interests or to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this document.
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In the UK, issued by First State Investments (UK) Limited which is authorised and regulated by the Financial Conduct Authority (registration number 143359). Registered office Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB number 2294743. Outside the UK within the EEA, this document is issued by First State Investments International Limited which is authorised and regulated in the UK by the Financial Conduct Authority (registered number 122512). Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB number SCO79063.
Certain funds referred to in this document are identified as sub-funds of First State Investments ICVC, an open ended investment company registered in England and Wales (“OEIC”). Further information is contained in the Prospectus and Key Investor Information Documents of the OEIC which are available free of charge by writing to: Client Services, First State Investments (UK) Limited, Finsbury Circus House, Finsbury Circus, London, EC2M 7EB or by telephoning 0800 587 4141 between 9am and 5pm Monday to Friday or by visiting www.firststateinvestments.com. Telephone calls may be recorded. The distribution or purchase of shares in the funds, or entering into an investment agreement with First State Investments may be restricted in certain jurisdictions.
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First State Investments (UK) Limited and First State Investments International Limited are part of Colonial First State Asset Management (“CFSGAM”) which is the consolidated asset management division of the Commonwealth Bank of Australia ABN 48 123 123 124. CFSGAM includes a number of entities in different jurisdictions, operating in Australia as CFSGAM and as First State Investments elsewhere. The Commonwealth Bank of Australia (“Bank”) and its subsidiaries do not guarantee the performance of any investment or entity referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of the Bank or its subsidiaries, and are subject to investment risk including loss of income and capital invested.
