Combining a macro view with the application of risk management principles to asset allocation and stock selection has been key for Amplify Investment Partners funds to provide industry-beating returns.

Iain Power, who manages the award-winning Amplify SCI* Wealth Protector Fund,  said at Amplify’s recent One Moment event that one of the biggest drivers of the fund’s success has been the management of risk through a volatile period. “That talks to the way we think about downside risk and building a portfolio in a way that still manages to achieve the double digit returns we are aiming for but at the same time keeps the capital safe through asset allocation and the equities we pick”. Asset allocation includes avoiding areas and sectors that suffered from multiple contraction and or earnings collapses over the past couple of years. “A combination of that has made quite a nice low volatility resilient return profile for our clients,” he said. 

Brian Thomas, who manages the Amplify SCI* Balanced Fund, said that looking at the return of equities relative to fixed income over the very long term, taking a 60-year history to 2020, equities provided 18.1% and the bond market 10.5%, while inflation has been 8.5% to 9%, “so bond returns have only just beaten inflation, which for most people investing, is the biggest enemy”.

“Recently, investors have been attracted to fixed income as equity returns over the last five years, excluding last year, have been quite pedestrian. But if you look at the long-term history, we are firm believers in the equity risk premium, which is the difference you get on equities relative to bonds over time, and for a person saving for retirement, being in a high equity product is something you want to be in over the long term,” Thomas said.

The Balanced Fund is very active in managing its exposure to equities, fixed income, and to local and offshore allocations. “We take a macro view at any point in time as to what is the asset class that is going to provide the best risk-adjusted expected return and will have the highest allocation to that asset class within the parameters one is able to invest.”

This has seen the fund recently be overweight SA fixed income relative to its strategic asset allocation and overweight SA equities. In the international component of the portfolio, the fund is underweight fixed income and equities. It will continue to move allocations around over time to achieve the best risk-adjusted return for the portfolio.

The Wealth Protector Fund focuses on real returns and the preservation of capital, and only includes shares where there is asymmetry and a value underpin, “where we can see that with relatively low risk, the securities are able to deliver the CPI-plus targets and benchmarks that we are looking for,” Power said.

Amplify’s hedge funds employ similar strategies. Richard Simpson, who manages the Amplify SCI* Multi Strategy Retail Hedge Fund said the fund applies a fundamental approach to investing, and assesses valuations of assets, almost irrespective of volatility. As volatility is difficult to try to assess, the fund has built a portfolio of assets “with enough of a margin of safety to manage through volatile times”. The hedge fund has the advantage of being able to short, enabling it to identify assets that are overvalued, which provides a degree of benefit in volatile markets.

Amplify’s fund managers remain cautious on property. Property sometimes behaves as a fixed income asset and sometimes an equity asset, said Thomas. “Given the volatility of property over the last few years, it definitely has more equity-type properties to us at the moment than fixed income properties”. Despite the good performance of property in the last year, the fund remains underweight property and with selected exposure, “given that property is going to be reasonably tough space to be”. Power said the Wealth Protector has had a measured approach, looking for a few counters where underlying assets were still decent and where there was not too much debt or where there was a mechanism for them to get out of that debt, and in those cases, “dipped our toe in the water”.