The challenges faced by advisers in coming up with balanced portfolios that properly reflect a client’s goals and appetite for risk have never been greater.
Stringent regulation, unpredictable market conditions and a sometimes overwhelming amount of choice have combined to make an adviser’s role ever-more difficult. Increasingly investors are turning to multi-asset funds as a way of outsourcing some of the decision making, safe in the knowledge that, with the right fund, it is possible to deliver upon a client’s objectives. Within this space, the JPM Multi-Asset Income Fund proves to be a compelling option.
“It is harder than ever to come up with a broad portfolio solution and navigating for growth and income require different approaches,” confirms Olivia Mayell, head of the client portfolio management team in J.P. Morgan’s investment management solutions, global multi-asset group in London. “There are many broader financial planning activities that the adviser has to be involved with and taking on asset allocation can be very difficult.
“What a good multi-asset fund like the JPM Multi-Asset Income Fund can offer is a way for advisers to outsource that process to a team of experts. They, in turn, can ensure a good level of diversification and achieve, in this case, an attractive level of income. They can do all of that in one place, with one easy solution, which acts to take a lot of the burden off the adviser.
“It represents a big change in the industry. Rather than taking a granular approach, with advisers choosing, for example, a small-cap manager, a corporate bond manager and so on, they can now employ a number of multi-asset managers. This provides them with the diversity they need but with greater breadth and depth.”
Ms Mayell is also keen to highlight the way in which opting for one or more multi-asset funds can help simplify an adviser’s conversations with clients and make it clearer for all parties as to what the particular risk and return characteristics are of the wider investment.
She says: “It means that when an adviser is conducting a review meeting with a client, or even presenting ideas to a new client, they can have a much more straightforward message. They can easily explain what the multi-asset fund is targeting and the strategies it is using to achieve that aim. It removes the need to go through the information and characteristics of a range of different funds and managers, making the whole process easier and hopefully leading to better outcomes for clients.”
In terms of the Multi-Asset Income Fund in particular, the specific appeal is for clients looking for a regular and stable income, as well as the potential for capital growth. In that respect, it proves popular among investors who may have previously relied on cash accounts and who are struggling to find good sources of income in a low interest rate environment.
“There is no doubt that it is much harder than it used to be to get a good level of income from savings or investments,” Ms Mayell confirms. “Advisers are dealing with people who have historically had 5 per cent from their basic bank savings account and who are now finding it difficult to accept that is no longer available. Individuals now need to make their money work harder for them and thoroughly assess what asset classes are going to suit them best, not just in terms of yield but also their appetite for risk.
“The benefit of opting for a multi-asset fund is it opens up investment types and areas that advisers may not be familiar with or may not have easy access to. If we accept that cash is over and that bonds have been largely squeezed dry, going down the multi-asset route opens up a wider range of opportunities, from things like high yield bonds in the US to specific emerging market positions. These are areas that are familiar for multi-asset managers, but may be off of a lot of advisers’ radars.
“One option advisers have traditionally gone for is UK equity income, targeting the big dividend payers in the FTSE100, but that opens them up to individual security risk. If you want fewer surprises for your clients, the best way to achieve that is through diversification. With the Multi-Asset Income fund we can offer them the whole world and give them a tailored solution for the best place to put their money.”
The fund, which is managed by Michael Schoenhaut and Talib Sheikh, is characterised by its high level of diversification, both globally and across asset classes. By seeking out the best opportunities from across a broad range of markets and investment types, the fund provides an attractive yield, which stands at 3.51 per cent as at 11 September 2014. It achieves this primarily through investing in high yield fixed income, high yield equities, investment grade fixed income, Global Reits and emerging market debt, as well as through “tactical opportunities” on a short to medium term view.
“We are focused on meeting clients’ needs, whether that is income for something like school fees or during retirement,” Ms Mayell adds. “We do that through crafting a balanced portfolio of assets that produce a good income and capital growth and with a risk profile akin to 60 per cent equity and 40 per cent bond portfolio, although the actual asset allocation often looks very different from that.”
The nature of the fund means it has a natural bias towards some asset classes and away from others. For example, commodities do not appear within the central opportunity set and the fund also does not hold a lot in cash, preferring to be fully invested.
“We are looking to invest in assets that offer a meaningful income and each asset has to contribute to the overall yield,” Ms Mayell says. “We do not hold something simply for the capital growth potential, it is very much income focused. That said, you can strive to achieve a high yield with everything and end up with far too much risk on the table. Instead, we have some high and some lower yielding assets, with the aggregate of that producing around 8 per cent volatility.”
When the fund launched in 2009, the team took a high conviction position in fixed income, which proved to be profitable. More recently, they have taken some profit from that position and moved instead to developed market equities, particularly in the US and Europe, where they believe there are good opportunities for yield and growth.
“We have more conviction on developed markets than in the emerging markets,” Ms Mayell adds. “We still like high yield bonds, but have less conviction than we did two years ago. We now prefer equity-linked assets, such as convertible bonds and preferred equities, which offer nice yields. Pleasingly, although we have tilted the portfolio from fixed income to a more equity-heavy position, we have not created any real change in the overall volatility.”
Looking forward, Ms Mayell anticipates that the managers will remain cautious in their enthusiasm, although they are confident the fundamentals are there to support their developed equity market bias. As a result, they are looking to take on a more muted level of risk, understanding the broader risks in the market and taking on relatively conservative core positions. They believe that by maintaining a good level of quality and by keeping overall duration on the fixed income positions quite low they will be well-positioned to deal with market movements.
“Overall, we are looking to provide a solution to a key problem being experienced by advisers, not just in the UK, but around the world:
securing a steady income for clients,” Ms Mayell concludes. “By creating a fund that produces an attractive yield but in a risk-averse manner will undoubtedly continue to prove popular and it is something we are justifiably proud of.”
Biography
Olivia Mayell, managing director, heads the client portfolio management team in the Investment Management Solutions – Global Multi-Asset Group in London. She has particular focus on target income, convertibles, alternatives and total return accounts. An employee since 2000, Olivia was previously a client portfolio manager for the global equity product range at J.P. Morgan Asset Management, working on the dynamic and convertible portfolios. Olivia obtained a BSc (Hons) in Natural Science from Durham University.
