Your IndustryFeb 26 2015

Picking the best multi-asset fund

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Multi-asset funds vary enormously and they will measure “risk” in a number of ways.

Hannah Sharman, head of sales at Cerno, says some will operate with reference to a benchmark asset allocation, while others will be managed with target volatility in mind. Others still will operate in an ‘unconstrained’ manner.

She says consideration should be given to a client’s risk appetite and tolerance based on a number of criteria, in particular their investment horizon and liabilities.

Many multi-asset funds are risk profiled by an independent ratings agency, which may help to align with the risk appetite of your client. A client’s income requirement should also be ascertained.

It is essential to make sure the multi-asset fund matches the risk profile of your client, agrees Rory McPherson, portfolio manager of Russell Investments. Mr McPherson says this sounds easy but being able to get transparency on what the fund is doing and investing in is key.

Managers also assert it is vital to cut through the marketing spiel to get to the heart of the fund and its investment remit to establish the risk.

There will be many solutions promoted as replacements for annuities, but in reality Vincent McEntegart, manager of the Kames Diversified Income fund, says investors must take care they understand what they are buying.

Mr Entegart says simple steps like checking where the fund is invested (i.e. what the split is between equities/bonds/property/alternatives, etc), what its maximum drawdown has been historically and whether it holds a high amount of cash, can all help advisers make the right choice for clients.

He says some funds pay income monthly but others do so less frequently and this is a key consideration. For most investors, a monthly income will be a key requirement.

Mr Entegart says a fund making quarterly payments, for example, may be acceptable if the investor receives monthly income from other sources, such as a pension from a final salary scheme and/or the state pension.

As multi-asset funds require significant resources to run given the breadth of the investment opportunities available, Nick Samouilhan, multi-asset fund manager at Aviva Investors, says advisers should also look for well-resourced teams.

In addition, he says advisers should look out for funds that target a specific client outcome and not a peer group/fixed benchmark to differentiate legacy funds from new generation funds.

Mike Parsons, head of UK funds sales at JP Morgan Asset Management, says advisers can judge the commitment and expertise of fund management groups by the quality of content they provide around investment solutions.

He says advisers should ask if managers provide helpful market research and insights to explain the investment backdrop, beyond just individual product descriptions?

When choosing a multi-asset fund, Mr Parsons agrees with Aviva’s Mr Samouilhan that it is also important to fully understand the asset allocation approach of the multi-asset fund and to assess the resources available to the manager.

He says advisers should ask:

1) Do they have an experienced investment management team?

2) Is there investment process fully and comprehensively explained?

3) Do they have a robust asset allocation expertise?

4) Do they take a global scale enabling them to incorporate and find the best investment opportunities around the world?

5) Do they have a proven performance track record?

6) Are the managers dynamic and flexible in their ability to adjust to changing market conditions?

7) Do they have a holistic risk management process in place?