Investment managers at Mediolanum International Funds discussed their latest asset allocation and trends shaping the industry at the third annual Mediolanum International Media Event (MedMe) in Dublin last week, attended by WealthBriefing.

As the US elections approach and geopolitical tensions heighten, in Dublin last week, a European investment house highlighted the benefits of investing in fixed income, and of maintaining a diversified, active management investment approach.

“We have seen more value in fixed income recently, as investors become more prudent,” Furio Pietribiasi, CEO at Dublin-based Mediolanum International Funds (MIFL), told this news service in an exclusive interview. He highlighted the importance of having a diversified investment approach, emphasising the 60:40 rule that involves allocating 60 per cent of a portfolio to equities and 40 per cent to bonds. Pietribiasi believes that bonds can provide effective diversification, offering predictable returns and less volatility compared with other investment types.

His views were echoed by Daniel Loughney, head of fixed income at MIFL. “Fixed income is fashionable and attractive at the moment, relative to recent history. Eighteen months ago yields were high, but investors remained concerned. Inflation is falling and volatility is coming down from the highs of 2022. Investors are feeling comfortable about moving into fixed income,” Loughney told this news service at the event. He sees opportunities in short-term dated government bonds. He is overweight in German bonds and believes that UK gilts are an attractive investment opportunity. He is modestly overweight in UK gilts and plans to increase that after the UK budget announcement on 30 October, as long as there are no surprises there.

“Once banks ease rates more meaningfully, we will probably see a rotation out of short-term government bonds into investment grade credit and emerging market debt, in Brazil and Mexico in particular,” Loughney added. “We think it is a very opportune moment for clients to get more exposure to fixed income. Yields are attractive, inflation and volatility are coming down.”

Until August, Loughney said he was overweight in US duration but has since reduced that position to neutral. “That could increase that again once the US elections in November are out of the way.” He added, that with the elections being a close call, it is important to guard against increased uncertainty. He thinks that there is a strong possibility that neither will have a big mandate.

Equities
Against a challenging backdrop, Terry Ewing, head of equities at MIFL, told this news service that the firm remains neutral in equities across the board, until events play out. He drew attention to the uncertainties created by the US elections and the conflict in the Middle East on equity markets.

Nevertheless, MIFL does have a bias towards US equities due to the domination in artificial intelligence and tech which Brian O’Reilly, head of investment strategy at MIFL, thinks will continue, despite US tech firms; recent setback.

ESG
Even though there has been less take-up recently in ESG investments, Inma Conde, head of ESG at MIFL, said that in March it launched two new multi-manager funds, adding to its ESG product range. The new funds, under the umbrella of Mediolanum Best Brands, are the Mediolanum Green Building Evolution Fund and Mediolanum Global Sustainable Bond Fund. They are both Article 9 funds under the Sustainable Finance Disclosure Regulation (SFDR). As such, these two new funds add to MIFL's range of investment solutions that focus on ESG, bringing the total to 11.

With construction being one of the sectors that has the biggest impact on carbon dioxide emissions, Mediolanum Best Brands Green Building Evolution is an equity fund that aims to achieve long-term capital appreciation by investing in companies that contribute to a sustainable transition in the building sector.

The Mediolanum Best Brands Global Sustainable Bond Fund is a fixed income fund that aims to achieve long-term capital appreciation through sustainable investment in, for instance, renewable energy and clean public transport, as well as affordable housing, sustainable infrastructure and food systems. “Client demand for Article 9 funds, which have a stronger investment sustainability objective, have been higher this year, compared to Article 8, after the recent SFDR review,” Conde added. She expects the trend to continue in the long term. See more commentary here.

Active management
Giorgio Carlino (pictured), head of multi-management at MIFL, also emphasised how active management in fixed income and equity markets in the medium and long term is pivotal for optimising market efficiency and capital allocation, especially in volatile or emerging markets.

Active management involves researching the company, industry and economic conditions to assess the intrinsic value of stocks and assets. “By buying undervalued securities and selling overvalued ones, active managers help ensure that prices reflect all available information, contributing to market efficiency,” Carlino said. “It is also important to allocate capital to companies and sectors with the highest growth potential, thereby supporting innovation and economic development.”

Carlino emphasised how the ability of active managers to generate alpha sets them apart, driving long-term value for investors. “The right time horizon is also critical for optimal outcomes. For equities, this means at least 10 years,” Pietribiasi added.

O’Reilly believes that informed, diversified strategies, coupled with active management, will enable investors to thrive in this environment.

The firm’s multi-manager strategy also focuses on partnering with boutique asset managers to create investment solutions that can outperform in specific market conditions. Richard Dell, head of equity research at Mercer, highlighted how boutique asset managers bring specialised expertise, excel in niche strategies, help to drive alpha and deliver value for sophisticated investors.   

MIFL is a management company approved by the Central Bank of Ireland to manage UCITS or undertakings for the collective investment in transferable securities, which are investment funds regulated at EU level, and non UCITS funds.