Multi-asset funds have been massively popular with investors in recent years. But because there have been so many launches in this time, it is almost impossible to know where to start when looking to select the right fund.
It is understandable that the end investor could be confused when picking funds, especially as many do not actually contain the phrase ‘multi-asset’ in their names. Originally all pooled into the Managed sectors, the Investment Management Association (IMA) reclassified its Cautious, Balanced and Active funds to the Mixed Investment 20-60% Shares, 40-85% Shares and Flexible Investment respectively and created the Mixed Investment 0-35% Shares sector. While many multi-asset funds now sit within those sectors, there is still a great deal that do not wish to be defined by how much equity they must hold, thus choosing to be in the Unclassified sector.
Clarity for the consumer
The idea for the sector revamp was to provide clarity to the consumer in creating comparability and consistency across insurance and investment funds, so the sectors are harmonised with the Association of British Insurers (ABI).
Table 1 shows the top five funds in the Mixed Investment 0-35% Shares, 20-60% Shares, 40-85% Shares, Flexible and Unclassified sectors over five years as at 1 September according to Morningstar data. The data from the Unclassified sector uses just the funds that market themselves as multi-asset. The Unclassified sector is also a new addition to Money Management’s statistics pages starting on page 57.
Although the sectors cannot be directly compared, the Unclassified sector comes out on top, with the £23.86 Smith & Williamson Skye Income fund, which saw returns of £2,167 – 16.7 per cent annually. Apart from the Unclassified sector, the Flexible Investment space has also performed well. Of the Mixed Investment sectors, Flexible Investment is the least constrained. The IMA says funds within the sector have significant flexibility over what to invest in and there is no minimum or maximum requirement for investment in equities.
However, many multi-asset funds still choose to place themselves within the Unclassified sector due to the lack of risk parameters. The IMA says that funds within the Unclassified sector are there because they do not want to be classified into other sectors. Examples could include private funds or funds which have been removed from other IMA sectors due to non-compliance. So it is important to keep in mind that funds within the sector are not defined by any risk allowance or asset allocation.
In the Flexible Investment sector, the Unicorn Mastertrust comes out as the top performing fund over five years. The fund, which is actually the top performing multi-asset fund across all sectors, differs from many in that it is a multi-asset fund of investment trusts. Managed by Peter Walls, the £20m fund provides exposure to a range of equity markets and asset classes, and its top holding is the Foreign & Colonial Investment trust – the first ever investment trust – which invests in both quoted and private equity firms in developed and emerging economies.
The Mixed Investment 0-35% Shares sector saw the lowest returns over the past five years, which could be down to the fact that funds within the space can only hold a maximum of 35 per cent in equities – many will have no exposure to equities at all – and the asset has been much stronger than others within that time.
Popular picks
Mixed Investment sectors are generally best suited to the newer investor and have become extremely popular due to their variety as it typically invests in a multitude of assets such as equities, bonds, cash and property.
Although the variety can also mean that the funds have various levels of risk. For example, a fund in the Mixed Investment 40-80% Shares sector is theoretically open to more risk as it can hold up to 80 per cent in equities.
According to the most recent figures from the IMA, the mixed asset space was the second best-selling asset class in July, with net retail sales of £304m, and the Mixed Investment 20-60% Shares sector was the fourth best-selling individual sector in the month, with net retail sales of £238m.
Isa influence
The sector was also the second best-selling for Isas, based on five fund platforms – Cofunds, FundsNetwork, Hargreaves Lansdown, Skandia and Transact – with net sales of £63m.
It is clear the multi-asset space is yet to die down in popularity and fund sales have been growing over recent years.
An array of portfolios have been launched offering a huge range of risk profiles
and it does not seem to be stopping any time soon. With consistent returns and a diverse portfolio from just one fund, it is easy to see why so many have been flocking to the space.
Five questions to ask:
1. How much risk does the fund take?
Having a variety of assets within one portfolio can mean the fund is exposed to fewer peaks and troughs in volatility, but look at the maximum standard deviation of each fund and how much is allocated within its objective.
2. Which assets does it invest in?
To get a truly multi-asset fund, you need exposure to as many asset classes as possible. Some funds classify themselves as multi-asset despite only investing in equities and bonds. Look at the fund’s objective to see where it invests.
3. Does it stick to its strategy?
As market cycles change, it is key to look at how much the fund deviates from its mandate in times of market volatility.
4. Is past performance good?
Although past performance should never be an indicator of future returns, it is important to see how the fund performs in various market cycles and how the manager has influenced the fund’s allocation to make sure it is not seeing a loss.
5. Is it a global fund?
As well as investing in different assets, the fund may be able to invest globally. Take a look at the underlying asset allocation to see which countries the fund invests in.
