Rethinking asset allocation in volatile markets: How Schroders uses a Total Portfolio Approach to target real returns

Traditional asset allocation struggles when stocks and bonds fall together. Schroders’ Total Portfolio Approach targets unified returns by actively moving between asset classes.

Markets have remained volatile over the past few years, and the market correlations that investors once relied on are unreliable. Equities and bonds, long seen as naturally diversified, have at times moved in the same direction while inflation, policy uncertainty and heightened geopolitical risks continue to drive sharp market swings.

In this environment, simply holding a mix of individually-managed asset classes is no longer sufficient. Traditional strategic asset allocation (SAA) portfolios, built around fixed-asset-class sleeves and individual benchmarks, have struggled to deliver consistent real returns above inflation and to protect capital. They can diversify within asset classes, but are less effective at shifting risk between them, often leaving investors exposed when markets sell off together.

Investors need a more active approach to portfolio construction, with clear visibility across asset classes and flexibility to move capital as conditions change.

In response, more fund managers, including the Future Fund, have adopted a Total Portfolio Approach (TPA). This framework sets a single return-and-risk objective for the entire portfolio, with every asset assessed on how it contributes to that outcome: either by enhancing returns or by reducing risk.

“Investors don’t care if you outperform an SAA. They want to know: Did I perform above cash or inflation? Because most people want a real return at the end of the day,” says Sebastian Mullins, Head of Multi-Asset and Fixed Income at Schroders Australia.

The Schroder Real Return Fund, available as both a unitised trust and Active ETF (ASX: GROW), is unashamedly active in pursuit of this real return, with a high trade volume that is unique in the industry.

This allows Mullins’ team to manage downside risk and anticipate opportunities across the whole portfolio as markets evolve. In late 2021, the Schroder Real Return Fund raised cash to nearly 50%, anticipating that inflation would damage both equities and bonds. As markets sold off, that flexibility helped limit losses and allowed it to reinvest near market lows in 2022.

Outperforming volatile markets

The TPA has paid off with the fund achieving its CPI plus 5% target over the last three years. It delivered 12.5% net of fees in 2025, beating passive 50/50 balanced funds* by nearly 4%, despite never holding even 50% in equities.

The strategy has found appeal with family offices as well. Many built wealth through concentrated positions but are now focusing on preservation across generations. Some rely on the Real Return Fund to diversify from illiquid private holdings, and others use it as dry powder while awaiting opportunistic deals.

“Risk-adjusted returns are quite important to those who have already established their wealth. Being nimble enough to capture these more volatile market movements is another way they find TPA attractive,” Mullins says.

As the low-inflation, low-volatility era of the past decade draws to a close, Mullins warns that investors cannot rely on any single asset class in the current turbulent environment. “The post-GFC period was an anomaly. Go back 100 years, there’s always been inflation, there’s been volatility, higher cost of capital, more winners and losers,” he says. “Having visibility across asset classes and the flexibility to move between them has shifted from advantage to necessity.”

*Vanguard Balanced Index Fund (net of fees) used as a proxy for a 50/50 balanced fund performance.

Schroder Investment Management Australia Limited AFSL 226473 ABN 22 000 443 274. Past performance is not a reliable indicator of future performance. All investment carries risk and may result in loss of capital.

For more information contact: 

Theone Star 

Head of Private Wealth, Australia 

privatewealth@schroders.com 

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