Multi-Asset - April 2012

Published by Investment Adviser | Apr 23, 2012

Alongside their multi-manager peers, multi-asset funds have been growing in popularity among advisers.

More and more of them are using these products to form the core of clients’ portfolios.

However, when it comes to comparing like for like within the multi-asset space, advisers have a tough job on their hands.

While the majority of multi-asset funds fall into the newly formed mixed asset sectors – previously the IMA’s managed fund sectors – each fund adopts a very different approach and none of them hold assets that are comparable in terms of weightings.

S&P Capital IQ recently decided to reclassify the multi-asset funds it grades because other peer-group providers had failed to take full account of exposure to riskier assets other than equities.

The new methodology takes account of a broad range of risk assets such as commodities, sub-investment grade fixed income and property and enables investors to compare asset allocation funds globally.

Randal Goldsmith, fund analyst and asset allocation sector head at S&P Capital IQ fund research, says: “As a global funds grading business, we believe it is desirable to have some comparability of definitions for asset allocation funds around the world.

“A big difference has been at the cautious/defensive end of the range which has led to the division of our sterling cautious sector into two groups – defensive and neutral. We have applied the same methodology to asset allocation funds that are not UK sterling-based.”

According to Bestinvest (page 10), asset allocation makes up 90 per cent of investors’ total returns, showing that having an experienced manager who knows the markets and can allocate accordingly can be extremely beneficial.

Eden Financial’s multi-asset co-manager Mark Harris (page 8) agrees: “Correlations between asset classes and within markets are moving lower and the dispersion in returns for 2012 will be considerable.

“In plain English, there will be more distance between winners and losers, and this makes it more important than ever for investors to select the right asset classes and investment style.”

However, as Dennis Hall, managing director of Yellowtail Financial Planning, points out on page 18, that it is important to understand what types of products multi-asset funds are using to gain exposure to different assets.

“Is it through trackers and exchange traded funds (ETFs) – much like 7IM’s Asset Allocated Passive (AAP) funds – or through other Oeics and managers with the additional expense that brings to the investor?” he says.

“I’m not a big fan of these funds, unless it is for small investments, perhaps less than £50,000, when these become a cheaper alternative of getting the right asset allocation.”

Jenny Lowe is features editor at Investment Adviser