Some equity-linked financial products have experienced a -45% annualized return over the past month. Diversified asset allocation urgently needs "antifragility."

CLS Network, March 24 (Editor: Yang Bin). Recently, the performance of asset classes beyond crude oil has been nothing short of chaotic, with sand and gravel mixed together. As a result, the multi-asset strategies that have risen in popularity in bank wealth management in recent years have been hit. The short-term returns of some equity-linked products have plunged, with one product’s annualized return over the past month reaching -45%.

Industry analysts point out that in the long and medium term, asset allocation remains the core logic for withstanding market volatility and achieving long-term steady returns. However, for global systemic tail risks that are difficult to predict in the short term, more attention should be paid to the “anti-fragility” of an asset-allocation portfolio.

An equity-linked wealth-management product had an annualized return over the past month of -45.07%

Since March, driven by the continuous escalation of tensions in the Middle East, almost all major asset classes have gone down across the board except crude oil. International gold prices once fell by 20% from their peak; the Shanghai Composite Index fell by more than 7%; and in emerging market stock markets, gains were generally smaller while losses were larger.

In recent years, bank wealth management has started to develop diversified-asset strategies to expand the yield boundaries of traditional fixed-income assets. Equity-linked wealth-management products (here including fixed-income plus wealth management, mixed wealth management, equity wealth management, and derivative-based wealth management) have gradually been on the rise. In the recent market environment where major asset classes were battered, the short-term returns of some equity-linked wealth-management products based on multi-asset strategies were also inevitably affected.

CLS Network, using Wind data, has statistics showing that the annualized return over the past month of equity-linked wealth-management products (annualized return; not the actual return received) was -45.07%, and many products are based on multi-asset strategies.

Chart: Fixed-income plus wealth management products ranked lower by annualized return over the past month

(Data source: Wind; compiled by CLS Network)

In the table above, Agricultural Bank of China Wealth Management’s Agricultural Bank of China Wealth Management Agricultural Bank of China Tongxin · Lingdong 21-Day Select Configuration Wealth Management Product (Youxian) K had an annualized return over the past month of -8.30%. This product already implements a multi-asset, multi-strategy approach. In addition to allocating to bonds and equity assets, the product prospectus states that it will appropriately participate in investments in financial derivatives such as commodity futures and stock index futures, with the purpose of hedging, to smooth out net value volatility and broaden the investment boundaries.

Among other equity-linked products, Huaxia Wealth Management Tiangong Ri Kai Wealth Management Product No. 8 (Precious Metals Index) had an annualized return over the past month of -10.42%. This product is actually an equity-type wealth-management product, with equity assets accounting for more than 80% of the allocation, mostly related to gold-related stocks.

Minsheng Wealth Management Jinzhu FOF One-Year Holding Period No. 1 A had an annualized return over the past month of -5.36%. The product is also based on a multi-asset, multi-strategy approach. The annual report shows that, after look-through, its allocation to equity assets is 13.07%, with another 0.12% in other assets.

Multi-asset strategies remain effective in the long term, building a “anti-fragility” framework

The macro fixed-income team at West China Securities stated that recent equity-linked products experienced significant drawdowns, causing the overall interval negative return rate of wealth management to rise in sync. In the third week of March, the proportion of wealth management interval negative return rates increased by 10.50 percentage points from the previous week to 16.10%, reaching a relatively high level in history.

By comparison, pure fixed-income wealth-management products have experienced slightly less impact recently. Data in the report related to March 24 from Puyi Standards show that across the market, the average annualized return over the past month for surviving open-ended fixed-income wealth-management products was 1.45%, down 0.26 percentage points month-over-month; for surviving closed-ended fixed-income wealth-management products, the average annualized return over the past month was 2.16%, down 0.26 percentage points month-over-month.

With major assets all showing less than ideal performance recently, the market will inevitably worry about the effectiveness of multi-asset strategies.

A researcher at a wealth-management subsidiary stated that the core of a multi-asset strategy lies in allocating different assets with low correlations, separating out the non-systemic risks of a single asset, and reducing overall portfolio volatility, thereby improving long-term returns and their stability.

“Diversified-asset strategies can help investors avoid disasters such as single-bond or single-stock blowups, and the bear market in a single market, but they cannot fully hedge global systemic tail risks.” The above researcher from a wealth-management subsidiary said, “The impact on major asset classes from the escalation of the Middle East situation this time is indeed difficult to predict.”

The asset allocation team at Guotai Haitong Securities believes that asset allocation should move beyond the constraints of a single asset’s rise and fall. Based on in-depth quantitative research and the risk parity concept, it should build an “anti-fragility” framework from a global perspective. If the Middle East situation does not ease materially in the short term, it should continue to strengthen the inflation and even stagflation narrative based on energy security. Assets such as energy, agriculture and food products, and equity dividend themes are still expected to outperform. In the long and medium term, the war premium will eventually fall, and after a pullback, there will be buying opportunities again for gold and equities in strong industrial trends.

The above researcher from a wealth-management subsidiary said that when looking at longer time horizons, asset allocation remains the core logic for withstanding market volatility and achieving long-term steady returns.

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