Alan Polley: Balanced funds are looking more attractive as conditions normalise

After the GFC investors generally had to chase greater risk to achieve targeted returns. But that looks to be changing, argues Pendal’s ALAN POLLEY

• Overly austere government budgets have hurt investors over past 15 years 
• More normal monetary and fiscal policies good for outlook 
• Find out about Pendal’s multi-asset funds

SINCE the global financial crisis, investors have generally had to chase greater risk to achieve returns.

Part of the blame lies with overly austere governments, says Alan Polley, a portfolio manager with Pendal’s multi-asset team.

“For the past decade and a half, government Treasury departments have been nowhere – they’ve been chilling out,” Polley argues. 

“The lack of fiscal policy meant monetary policy needed to take up the slack via non-conventional tools such as quantitative easing.

“The resulting wall of money increased valuations, decreased prospective returns and risked asset bubbles.

“Now that’s unwinding, there’s descent prospective returns for equities and bonds – and that makes balanced funds more attractive.”

What happened

In the aftermath of the global financial crisis, many governments implemented austerity measures, which involved cutting spending and raising taxes in an effort to reduce budget deficits and debt levels.

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Austerity policies were controversial. Some argued they were necessary to stabilise the economy and restore financial stability.

Others argued the measures were harmful to economic growth and disproportionately impacted the poor and vulnerable.

The austerity measures were also bad for investors, who generally had to chase greater risk to achieve returns.

“Europeans took it way too far and that killed their economy – which is why they’ve had basically no price returns on the stock market,” Polley says. 

Compounding the challenge has been ultra-low interest rates which reflect monetary policy — not fiscal policy — doing the hard work stimulating economies. 

A return to fiscal support

But the Covid pandemic was a turning point.

“The pandemic has been a major turning point in many aspects, and one of them is the realisation from governments and finance departments that monetary policy is out of bullets and so fiscal policy needs to fire up,” Polley explains. 

“The transition to fiscal policy is good for investment returns, because governments will now do some of the work to bolster aggregate demand. 

“Issuing more debt at a time when central banks are decreasing their balance sheets, creates a more normal supply-demand balance for government bonds – and more normal bond yield levels.” 

While governments (notably the US) have spent money in recent years, as a long-term secular trend fiscal policy hasn’t been pulling its weight supporting economies, Alan says. 

“Looking forward, we finally have fiscal policy back which means monetary policy can start to normalise, which is what’s happening,” he says. 

Normal fiscal policy and normal monetary policy means we can get back to normal investment returns. 

“Fiscal and monetary policy are supposed to work together.

Monetary policy is such a blunt instrument but with fiscal policy you can fine tune it a little bit more. You can aim your spending or target you revenue raising to get more productive outcomes,” Alan says. 

“The two are designed to work together and we just haven’t had that since the GFC.” 

About Alan Polley and Pendal’s Multi-Asset capabilities

Alan is a portfolio manager with Pendal’s multi-asset team.

He has extensive investment management and consulting experience. Prior to joining Pendal in 2017, Alan was a senior manager at TCorp with responsibility for developing TCorp’s strategic and dynamic asset allocation processes covering $80 billion in assets.

Alan holds a Masters of Quantitative Finance, Bachelor of Business (Finance) and Bachelor of Science (Applied Physics) from the University of Technology, Sydney and is a CFA Charterholder.

Pendal’s diversified funds provide investors with a variety of traditional and alternative asset classes and strategies.

Find out more about Pendal’s multi asset funds:

• Pendal Multi-Asset Target Return Fund
• Pendal Sustainable Balanced Fund
• Pendal Sustainable Conservative Fund

Contact a Pendal key account manager here