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Our views 21 July 2023

A diversified multi asset approach to beating inflation over the long run

5 min read

In our view there is no such thing as passive in multi asset. We are active at three levels: in the way we select and blend asset classes to generate returns and provide resilience to shocks; in the way we manage day to day weightings across the business cycle; and in the way each asset class is expressed at the individual security level.

We believe in diversifying beyond the global stocks and investment grade bonds you’d find in a traditional balanced fund. Our Governed Portfolios (GPs) and Global Multi Asset funds (GMAPs) seek to maximise returns after inflation, so we include inflation hedges like commodities. That really helped in the inflationary post-Covid period when stocks and bonds both struggled. We also include commercial property, an asset class with a similar proven long term-track record to stocks in terms of beating inflation by a wide margin.

Since 1988, investing solely in equities or property and reinvesting dividends or rent would have seen the purchasing power of your portfolio increase to between five and eight times its original level (chart 1).

Chart 1: Long run total returns from stocks, property and cash, expressed in real terms

Chart 1: Long run total returns from stocks, property and cash, expressed in real terms

Past performance is not a guide to future performance. Source: Refinitiv Datastream as at 20 July 2023.

At the current juncture, we believe that the most likely outcomes are either that the world economy continues to shrug off higher interest rates, to the benefit of stocks, or we fall into a disinflationary recession with government bonds outperforming in anticipation of interest rate cuts. It’s true that cash tends to beat both stocks and bonds in periods of Stagflation (chart 2) but, more often than not, commodities do much better at these times. Commodities beat cash by 30% over 2022, as a case in point.

Chart 2: Real returns across the business cycle by asset class

Chart 2: Real returns across the business cycle by asset class

Past performance is not a guide to future performance. Source: RLAM for illustrative purposes only. Data based on an analysis of business cycles since April 1973. As at 1 January 2023.

Update on our GMAP funds

Diversification can, of course, sometimes come at a cost relative to peers. Our funds underperformed less diversified balanced funds over 2020 when unprecedented central bank support boosted bond returns and a wave of stimulus put a rocket under the US technology sector. Likewise, we’ve seen a modest degree of underperformance over the last year, though most of this was concentrated in the autumn of 2022 when the ‘mini budget’ crisis triggered a near 20% fall in UK commercial property prices. The silver lining here is that property is the only major asset class that may already be pricing in a recession.

In Q2 2023, we changed the strategic mix of our funds in order to diversify further into global assets while reducing UK-specific risk by lowering domestic equity, corporate bond, and property weights. This has benefitted recent performance versus peers by allowing us to capture more of the recent upside in US equities.

Tactical asset allocation has also added value over the last three years.

  • We overweighted stocks, high yield and commodities during the ‘Great Re-Opening’ in 2020/21
  • We took equities down but stayed overweight commodities in 2022’s Stagflation, with bond exposure significantly reduced from an already low starting point
  • So far in 2023 the funds have benefitted from a decision to move back overweight equities during the mini budget crisis, emphasising the US and Japanese markets, while tilting exposure away from commodities and bonds

Benign market conditions could continue for a while longer, but we are ready to get more defensive if strong labour market data gives way to a rising unemployment picture. As and when central banks succeed in their efforts to reign in growth, stocks and high yield bonds could drop in value while government bonds, and maybe gold, would offer safe havens for an active multi asset investor.

Spiky inflation and a return to short, violent business cycles underlines the need, in our minds, for both broad diversification and for active management seeking to adjust the portfolio to better suit the changing world.

Table 1: GMAP Performance

Table 1: GMAP Performance

Past performance is not a guide to future performance. Source: RLAM as at 30 June 2023. Performance shown is net of fees and taxes.


This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.

Risk warnings

Investment risk: The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested

Credit risk: Should the issuer of a fixed income security become unable to make income or capital payments, or their rating is downgraded, the value of that investment will fall. Fixed income securities that have a lower credit rating can pay a higher level of income and have an increased risk of default.

Derivative risk: Derivatives are highly sensitive to changes in the value of the underlying asset which can increase both fund losses and gains. The impact to the fund can be greater where they are used in an extensive or complex manner, where the fund could lose significantly more than the amount invested in derivatives.

EPM Techniques: The fund may engage in EPM techniques including holdings of derivative instruments. Whilst intended to reduce risk, the use of these instruments may expose the fund to increased price volatility.

Exchange Rate risk: Changes in currency exchange rates may affect the value of your investment.

Interest Rate risk: Fixed interest securities are particularly affected by trends in interest rates and inflation. If interest rates go up, the value of capital may fall, and vice versa. Inflation will also decrease the real value of capital.

Emerging Markets risk: Investing in emerging markets may provide the potential for greater rewards but carries greater risk due to the possibility of high volatility, low liquidity, currency fluctuations, the adverse effect of social, political and economic instability, weak supervisory structures and accounting standards.

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Fund investing in Funds risk: The fund is valued using the latest available price for each underlying investment, however it may not fully reflect changing stock market conditions and the fund may apply a ‘fair value price’ to all or part of its portfolio to mitigate this risk. In extreme liquidity conditions, redemptions in the underlying investments, and/or the fund itself, may be deferred or suspended.

Liquidity and Dealing risk: The fund invests indirectly in assets that may at times be difficult to value, harder to sell, or sell at a fair price. This means that there may be occasions when you experience a delay in being able to deal in the fund, or receive less than may otherwise be expected when selling your investment.

The Royal London Global Multi Asset Portfolios are sub-funds of Royal London Multi-Asset Funds ICVC, an open-ended investment company with variable capital with segregated liability between sub-funds, incorporated in England and Wales under registered number IC001058. The Company is a non-UCITS retail scheme. The Authorised Corporate Director (ACD) is Royal London Unit Trust Managers Limited, authorised and regulated by the Financial Conduct Authority, with firm reference number 144037. For more information on the fund or the risks of investing, please refer to the Prospectus or Non-UCITS retail scheme Key Investor Information Document (NURS KII Document), available via the relevant Fund Information page on