All Asset All Access: Positioning Portfolios for Opportunity in Stormy Markets


  • Research Affiliates’ analysis suggests many asset classes now offer reasonable – and in several cases, impressive – forward-looking premiums for bearing risk.
  • The All Asset strategies are selectively rebalancing into newly cheapened risk-on markets with now-elevated multi-year return estimates, including developed market equities outside the U.S., commodities, U.S. small cap equities, and real estate investment trusts (REITs).
  • Third Pillar markets (e.g., real return assets, high yield credit, and emerging markets) with materially negative correlations to the U.S. dollar tend to trade at deep discounts to average valuations, implying compelling long-term return prospects.

Rob Arnott, founder and chairman of Research Affiliates, shares his thoughts on recent market conditions and describes how the All Asset strategies were positioned leading up to and during the COVID-induced market crash. Omid Shakernia, senior vice president of asset allocation at Research Affiliates, discusses the link between asset classes’ sensitivity to the U.S. dollar and their long-term return prospects. As always, their insights are in the context of the PIMCO All Asset and All Asset All Authority funds.

Beginning with this edition, All Asset All Access will be published on a quarterly cadence.

Q: What are your thoughts about the market environment?

Arnott: The COVID-induced market crash followed by an unprecedented policy response has led to market volatility and uncertainty. At the close of the first quarter of 2020, nearly all assets, with the exception of the most liquid and seemingly safe-haven U.S. Treasuries, were savaged. Returns in March alone of U.S. stocks, EAFE stocks (i.e., developed markets in Europe, Australasia, Far East), high yield bonds, EM (emerging markets) non-local debt, REITs (real estate investment trusts), EM stocks, and convertible bonds fell within their worst 1st percentile historical rank.1

With most markets producing historic losses in March, asset allocation was largely futile; our diversified and value-oriented posture provided little downside benefit. But outsized volatility has a silver lining. Severe market adjustments have led to many asset classes now offering what we at Research Affiliates see as reasonable – and in several cases, impressive – forward-looking premiums for bearing risk. Asset prices in certain markets have moved into bargain territory.

The coming months should afford buyers some excellent opportunities to average into attractive asset allocation opportunities. And that’s what the All Asset strategies are designed and managed to exploit!