Strategies for Brighter Investment Outcomes in Uncertainty

Introduction: In the world of investment, the pursuit of returns seems to be an eternal theme.

In fact, the essence of investment lies in managing risks. As Mr. Graham pointed out, the greatest certainty in investing is uncertainty. It is precisely because of the many uncertainties that he proposed concepts such as "prudent analytical processes" and "margin of safety," which remain widely adopted investment philosophies to this day.

Investment is not only about returns; it pertains to everyone's future. Some invest with a heartfelt love for the prosperity of their hometown, while others are sowing the seeds for a greener future. The prosperity of a hometown often takes years, if not decades, to cultivate; trees planted in a desert also require many years to grow into a green forest. Time is a critical factor in investment.

For public financial management, investing in the long-term future often requires obtaining relatively stable expected returns. So, how can we reduce the impact of uncertainty in investing?

We have discovered an "impossible triangle" of asset characteristics, wherein it is impossible to simultaneously satisfy high returns, low volatility, and high liquidity. A single asset is evidently hard to meet the varying needs of different investors, especially considering the economic "seasons" of "spring, summer, autumn, and winter," where the performance of each asset class can vary widely.

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In this era of changing macro cycles, multi-asset investment may be a better solution. It can reduce the uncertainties of single assets across time and space, helping investors achieve their respective investment goals.

The only certainty is uncertainty

On Schroders’ official website, there is a statement about diversified assets: "The only certainty is uncertainty." In explaining this statement, Schroders further notes, "While no one can predict what will happen in the future, we can identify investments that perform relatively better in the worst-case scenarios."

As an international asset management institution with nearly 80 years of multi-asset investment management experience, Schroders has navigated through countless bull and bear markets. Amid turbulent waves of investment, Schroders has created long-term value for its clients and managed different investment risks through its multi-asset investment capabilities.

So, how do they achieve long-term value creation for users? We believe it is mainly through two aspects:

The first aspect is the optimized multi-asset portfolio for different scenarios.

Schroders’ diversified investment is reflected not only in the rich variety of asset classes but also in the different types of products offered. Their investment scope encompasses both public and private markets, creating investment capabilities that are both deep and broad. Among the $978.1 billion total assets under management, $97.3 billion is in private market assets, including real estate, private equity, private debt, and infrastructure (data as of June 30, 2024). The dedicated private market investment division under Schroders—Schroders Capital—has over 725 employees across 25 regions globally.

As early as 1998, Schroders Capital completed its first private equity investment in China and established an office in Beijing in 2008, becoming one of the few global financial institutions with dual currency investment capabilities in both U.S. dollars and RMB in the Chinese market.

In addition to the depth and breadth of asset classes, Schroders also conducts dynamic management when constructing their portfolios to achieve continuous optimization of the investment portfolio.

The second aspect is the integration of long-term investment with sustainability.

Another layer of long-term value is sustainability. Schroders believes that sustainability is a source of potential long-term investment performance. Every investment decision we make affects not only our clients' future financial conditions but also has an impact on society and the environment.

Schroders believes that evaluating a company cannot focus solely on financial indicators such as profitability and growth potential. Companies do not exist in isolation; their actions can have both tangible negative and positive impacts. A company that embraces sustainable development can also generate greater long-term value. When constructing portfolios, Schroders considers a range of ESG factors and their effects on humanity and the planet.

Schroders has over 60 ESG analysts and integrates ESG strategies into its investment decision-making process. Moreover, Schroders is a founding member of the global net zero asset managers initiative, dedicated to advancing net zero emission goals.

Improving corporate governance can lead to better returns

With a 30-year history of conducting business in mainland China, Schroders has always held a positive outlook on Chinese assets. The Chinese capital market has become an important part of global asset allocation, closely linked to global growth. Schroders' diversified asset division has proposed two market perspectives:

First, the recent stimulus measures introduced by the Chinese market and the moderate rate cut prospects in the United States provide a positive backdrop for investing in Asia. The momentum for Asian markets to drive global growth in 2024 will also continue into 2025, supporting the reflow of capital into Asia's financial markets.

Second, the three main investment themes for the remainder of 2024 and 2025 in the Asian markets are: 1) Artificial Intelligence (AI) and the broader IT field; 2) Corporate governance reform; 3) Asian credit bonds with attractive yields.

For instance, regarding corporate governance reform, the strong returns in the Japanese market this year have benefited from improvements in corporate governance. The Tokyo Stock Exchange promotes better corporate capital allocation through its monthly publication of a list of companies aware of capital costs and stock price management. This indicates that good corporate governance complements value investing principles, leading to better investment returns.

Investing in a better future

Long-term investment is not solely about achieving returns; Schroders integrates ESG into every facet of the investment process, enabling the provision of returns to investors while fulfilling long-term social responsibilities. Today's investments are not only about optimizing the allocation of social resources but also serve as a vital force in promoting sustainability in societal development.