The three points of differentiation of Aviva Investors
“We have more than 1,500 investment specialists around the world. There is a meeting at 8:30 am every day, which brings together people from Singapore, Paris, the United States and elsewhere to discuss their views and trends “- investment director Thomas Stokes
Aviva Investors was a finalist in the Best Group / Multi-Asset Fund for ESG and Best Multi-Asset Fund: Volatility Management categories at the 2021 PA Awards. Cherry Reynard speaks with the Investment Director of the Multi Team – Company Assets, Thomas Stokes, to learn more about his fund management in a crowded arena …
The multi-asset market is crowded. There are over 750 multi-asset funds, often with similar asset allocation and investment selection. Aviva Investors has however sought to distinguish three points of differentiation in its multi-asset range: its internal asset allocation, its environment, its social and governance framework, and its dynamic investment selection.
Thomas Stokes, chief investment officer in the group’s multi-asset team, says managing asset allocation internally is an important starting point for the group. This is surprisingly rare with many groups that outsource to outside vendors rather than using in-house teams.
There are real benefits to being in control, says Stokes. The group can rely on its global resources to make decisions, which allows a completely objective view of the merits of the different regions and asset classes. He adds: “Among our top ten peers, there are on average around a third of UK working people. This is a significant overweighting.
Although the performance of UK assets has improved more recently, they have been a long-term weak point in global markets: “UK stocks have been lagging behind the US, emerging markets and Japan. “I have never been among the top performers in the past 20 years. The last year has been particularly bad, however – everything about Covid has gone against UK stocks because the market is full of oil and banks. “
Aviva Investors’ approach has allowed them to allocate more flexibly across the globe: “We have over 1,500 investment professionals around the world. There is a meeting at 8:30 am every day, which brings together people from Singapore, Paris, their views and tendencies. “
This has also been important for fixed income securities, not only to seek out sources of return in an increasingly yield-hungry world, but also to find weakly correlated assets. “The more global your perspective, the more opportunities there are,” says Stokes.
There is no official definition of environmental, social and governance funds. While this may improve with the Sustainable Finance Disclosure and Taxonomy Regulation, progress has been patchy and slow. Aviva Investors integrates ESG considerations into all of its investment decisions and, most importantly, focuses on active ownership, encouraging companies to move in a positive direction.
Stokes says, “We voted against management about a quarter of the time. Among our peer group, this figure was only 10%. The group is aiming for net zero on all its underlying assets by 2040. Aviva itself has been carbon neutral since 2006.
It targets in particular the top 30 carbon emitters, pushing them to put in place a plan. If they do not comply, the group withdraws: “If half of these companies become neutral on the net, it is the equivalent of the United Kingdom and Europe. The size of the prize is huge.
The group also recognizes its educational role. He publishes a monthly video, each talking about a recent company engagement: Unilever and its approach to plastics, for example. For Stokes, it’s about clarifying their approach and linking it to the end investments.
In recent years, investors have been able to rely on simple asset allocation – the 60/40 mix of fixed income and stocks has generally worked well. The future, however, may be more complicated. The multi-asset team at Aviva Investors believes that for sustainable portfolios, they need the flexibility to change when markets change and evolve. This is the third pillar of his approach.
This includes a more nuanced view of risk. Stokes says, “Standard models are quite simplistic and simply view risk as volatility. No customer has ever said “I want a specific variance around the mean”. Instead, they think of risk as ‘if the markets go down, I don’t lose my money’.
As an insurance company, the group believes it understands risk. He performs extensive stress tests on multi-asset portfolios, to understand where the risks lie. He can also use the risk framework to launch the tires before making an investment.
Stokes says the last item is education and support. The multi-asset team strives to provide insight into their decision making, as well as a range of support tools that advisors can use with their clients. For him, this is part of the group’s differentiated proposition in an increasingly crowded market.