Meike Bliebenicht, senior product specialist for multi-asset at HSBC Global AM, says the label ‘multi-asset’ reveals nothing about how those assets are actually managed.
James Priday, director of Strawberry Invest, agrees: “Multi-asset funds differ in their risk levels and investment objectives. The investment objective of a multi-asset fund may be to generate income, to achieve capital growth, or to achieve a balance of income and capital growth.
“Looking at these two factors together shows how multi-asset funds can vary greatly; for example, Investec Diversified Income is listed in the IMA Mixed Investment 0 to 35 per cent Shares sector and aims to provide income with the opportunity for long term capital growth; while Baillie Gifford Managed is listed in the IMA Mixed Investment 40 to 85 per cent Shares sector and aims to achieve above average returns over the long term by investing worldwide in transferable securities.
“Unsurprisingly, given that equity markets have generally had a good run over the last five years, the Baillie Gifford fund has massively outperformed the Investec fund [to 11 August 2014], but it is very important to note that their risk levels and investment objectives are very different.”
Variation between the operation of multi-asset funds is significant, concurs James Bateman, head of portfolio management of Fidelity Solutions.
Mr Bateman says: “No two multi-asset strategies are the same, and investors should think carefully about the differences between the products available.
“For clients looking to invest for the long term, one of the major questions is likely to be whether to opt for a standard multi-asset fund, or a multi-asset income fund.
“For those looking to generate income from their investments – either to take as cash, or to reinvest towards the total return of an investment pot – a multi-asset income fund can diversify not only sources of return, but also of income.
“By investing in a range of income-generating asset classes from across the market, these funds can address the current environment of low yields by looking in unconventional places for income.”
According to Mark Wright, fund manager at Seneca Investment Managers, the different multi-asset fund strategies for advisers to look out for are as follows:
1) Absolute Return. This strategy aims to deliver positive returns to investors regardless of market conditions usually over some defined time horizon.
2) Mixed Assets. These are funds in the IMA sectors with some parameters on their asset allocation according to their equity exposure.
3) Risk Targeted. These are funds that aim to deliver a measure of risk sometimes relative (i.e. 50 per cent of FTSE All Share volatility) or sometimes absolute (for example, between bands 5 to 9 per cent volatility). They would also aim for a return target as well in many cases.
4) Global tactical asset allocation (GTAA). This is a top-down investment strategy where Mr Wright says the main investment focus is to exploit short-term mispricing between asset classes while maintaining exposure to all asset classes for risk management.
Craig Nowrie, multi-asset client portfolio manager of Threadneedle Investments, says there are three broad-based strategies adopted by multi-asset fund managers.
1) Strategic Asset Allocation is set at inception - and often reviewed annually - with limited tolerance levels (for example, there could be an allocation to property of 10 per cent in the strategic benchmark with a plus and minus 5 per cent tolerance level around this).
The implementation of this allocation will typically be through passive or active investments, Mr Nowrie says.
2) Dynamic Asset Allocation sees managers dynamically allocate between a range of assets.
There may be parameters for individual asset classes, but Mr Nowrie says these will typically be broad enough to ensure that the manager does not need to invest in an asset class simply because the strategic benchmark requires the manager to do so.
There are two approaches taken by the dynamic asset allocation managers, according to Mr Nowrie: those of who look to preserve capital and those who are more growth orientated. Growth-orientated dynamic managers will tend to have a higher correlation and higher beta to equities.
3) Derivative-based strategies have derivatives as the main driver of returns. To do this, Mr Nowrie says leverage is employed.
While the funds will hold enough capital to meet margin requirements, Mr Nowrie says it is important for investors to be aware this strategy is being deployed.
David Jane, manager of multi-asset funds at Miton, says advisers should note that actively managed multi-asset funds can have a ‘go anywhere’ approach to investment. He says many blend ‘core’ strategic longer-term positions with shorter term ‘satellite’ tactical or trading positions.
Mr Jane says: “The core focus is to combine asset classes that are both attractively valued and that perform differently in varying market conditions.
“This combination and approach to investing aims to optimise potential return and reduce the accompanying risk whilst leaving asset allocation to a professional.”
A balanced strategy can be followed with the ability to use core asset classes at any one time, Mr Jane says. He says such diversification tends to offer both lower risk and volatility and means that you never invest too heavily in any particular area.
For example, Mr Jane says a portfolio or fund consisting of only one sector or theme, while it may enjoy stellar returns in one market cycle, may well disappoint in another.
He says it is likely that such funds will only be right for some of the time.
