Multi-manager on an upwards trend
The volatility in equity markets experienced in the first eight months of the year has helped drive investors towards those areas deemed less risky, be it fixed income or diversified investments like multi-manager funds.
In the year to August 31, the FTSE All-Share index returned 7.01 per cent. However, this single figure does not truly capture the rollercoaster nature of 2012.
From the start of the year the index was relatively positive, before peaking on March 16 2012 with a gain of roughly 9.33 per cent. However, it then lost approximately 10.97 per cent between March 16 and June 4, before again rebounding with a gain of 12.42 per cent to August 17, according to FE Analytics.
With such uncertainty in the index, it is unsurprising that in July the second best-selling IMA sector in retail terms, behind Sterling Corporate Bond, was the Mixed Investment 20-60 per cent Shares sector, with £203.1m in net retail sales. The sector, formerly called Cautious Managed, has underperformed the FTSE All-Share overall, with a return of 5.33 per cent. However, its performance has been less volatile.
Like the index, the sector started the year well, posting a return of 5.04 per cent to March 14, before dipping to a low slightly earlier than the index on May 21, with a drop almost half that of the FTSE All-Share at 4.3 per cent. It then produced a positive return, peaking at 5.04 per cent on August 17.
Although the overall returns of the sector were lower than the index, the difference between the peaks and troughs was shallower, providing less of a concern for cautious investors.
Given the volatility of the past five years, this diversification and smoothing of returns has attracted advisers to multi-manager funds in the mixed asset sectors. Demand is also predicted to continue. When taken together, the three Mixed Investment sectors and the Flexible Investment sector, which house a large proportion of the UK’s multi-manager funds, account for approximately 13.7 per cent of the total assets under management (AUM) in IMA sectors, or £91.9bn.
According to second-quarter figures from the IMA on funds of funds’ assets and sales, the Mixed Investment 20-60 per cent Shares sector was the second best-selling IMA sector for funds of funds, with £249.1m in net sales. The peer group was beaten only by the Specialist sector, which recorded £267m of net sales.
However, the largest Mixed Investment sector by AUM is still Mixed Investment 40-85 per cent Shares – formerly Balanced Managed – which accounts for £38.8bn of assets, larger than 15 of the 18 IMA equity classes. Within fixed income, another cautious choice, only the Sterling Corporate Bond sector houses more assets.
With continued concerns about liquidity in the corporate bond sector, or the ease of getting investors’ money in and out of corporate bonds, the question for the future is whether multi-manager funds and the Mixed Investment sectors in particular will capture an even larger share of new retail investments.