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Fund Review: Multi-asset

Introduction

Latest figures from the Investment Association (IA) show that in April mixed asset funds recorded net retail inflows of £173m, although this was a decline from the £191m seen in March, as fixed income and money market funds saw an increase in popularity.

The IA Mixed Investment 40-85% Shares sector was the best-selling mixed asset sector in April with net retail sales of £126.6m, while the Mixed Investment 20-60% Shares sector clocked up inflows of £76.8m. Meanwhile, the Mixed Investment 0-35% Shares sector recorded net retail sales of £23.2m in the same month.

Interestingly in such an uncertain economic environment with low growth, inflation and interest rates, the more unconstrained IA Flexible Investment sector saw the only net retail outflows among the mixed asset categories with £22m leaving the sector in April.

That said, overall the four mixed asset sectors account for £119.3bn of funds under management, making those areas a sizable part of the UK retail investment landscape.

Research from Henderson Global Investors in its white paper ‘Multi-Asset: The evolving opportunities’ shows in the past 10 years the total market assets under management in the multi-asset space has grown by more than £100bn, from £21.5bn in 2005 to £126.5bn in 2014. The number of funds has also almost tripled from 263 a decade ago to 653.

Performance has also been a positive factor, with the four mixed investment sectors from the IA producing double-digit returns in the past five years. The IA Mixed Investment 20-60% Shares sector is at the bottom of the pile with a return of 28.57 per cent to June 2 2015, which is perhaps not unexpected given its association with more cautious portfolios.

Arguably more interesting is the fact that the best performing of the sectors is not the IA Flexible Investment, which, with a less constrained approach, should be able to take advantage of improving market situations. Instead, it sits in second place over five years with a return of 48.22 per cent behind the IA Mixed Investment 40-85% Shares sector average of 49.46 per cent.

Multi-asset, however, is not just a retail market phenomenon. Research from the institutional market suggests the space still has more to give, especially with attitudes to risk and the search for income remaining key areas for many investors.

Studies from NN Investment Partners show that more than half of the institutional investors surveyed in its latest Risk Rotation Index favoured multi-asset strategies ahead of equities and hedge funds as a way of combating risk in their portfolios.

Valentijn van Nieuwenhuijzen, head of strategy, multi-asset at NN Investment Partners, says: “In the current low-yield environment investors are increasingly looking to mitigate their risk while still aiming for attractive returns. It is therefore no surprise to see that they are turning to multi-asset strategies which provide diversity in return sources and adaptability that helps create a safety net against losses.”

THE PICKS

JPM Portfolio

This £66.2m fund is managed by the trio of Jonathan Cummings, David Chan and Katy Thorneycroft and has appeared in the Investment Adviser 100 Club for two years running. It utilises a fund-of-fund strategy, investing across a range of internal JPM Asset Management funds. The vehicle has exposure to global markets but with a bias towards the UK. It has outperformed its IA Flexible Investment sector peer group across one, three and five years, while its 10-year return of 121.62 per cent is more than 30 percentage points higher than the sector average.

Royal London CIS Sustainable World Trust

The core idea behind Mike Fox’s £166.54m fund is to invest in “growing, innovative companies providing solutions to key social issues”. This strategy is supplemented by investing in companies “showing leadership in environmental, social and governance management”, adds its factsheet. As a result, the fund has its largest allocation to healthcare at 22.2 per cent of the portfolio, while basic materials is its smallest weighting at 3.6 per cent. It has consistently outperformed its IA Mixed Investment 40-85% Shares sector with its five-year return of 83.02 per cent almost double the sector average of 47.68 per cent.

EDITOR’S PICK

Kames Ethical Cautious Managed

This £315.76m fund is co-managed by Audrey Ryan and Iain Buckle and has appeared in the Investment Adviser 100 Club for two consecutive years, winning the Mixed-Asset category in 2014. The fund invests in a diversified range of UK equities, bonds and cash, which meet its predefined ethical criteria, although equities are limited to a maximum of 60 per cent at all times. Performance has been consistently strong, outperforming its Mixed Investment 20-60% Shares sector across one, three and five years.

In this special report