Multi-asset has been a major buzzword in asset management in recent years. However, one of the biggest issues for advisers is that no strategy is the same, so as the number of multi-asset funds is on the rise, it is becoming increasingly difficult to compare them and pick the right funds for clients.
The growth in outsourcing since the RDR, and the opportunities presented by the pension freedoms have seen multi-asset funds grow in popularity. In fact, 30 funds have been launched in the Mixed Investment and Flexible sectors in the year to the end of Q1 2016 – 91 in the past three years. Many funds – particularly in the past two years – have been marketed as being suitable for retirees looking for income in retirement, almost as an alternative to owning an annuity.
But with many strategies across the board and no set definition, how can advisers really compare funds? Even the Investment Association (IA) only says, “The fund manager will aim to build a portfolio with a mix of assets that is consistent with an investor’s identified risk objective,” with no definitive answer to how many asset types need to be included.
Difficult choices
The difficulty in comparing multi-asset funds can also make it harder for advisers when choosing funds for outsourcing purposes. Multi-asset funds are essentially another form of model portfolio – particularly funds of funds. They also tend to have much lower entry costs than discretionary solutions or model portfolios – usually around £1,000.
Taking a look into performance, Table 1 shows the top 20 performing funds in all Mixed Investment sectors (Mixed Investment 0-35%, 20-65%, 40-85% Shares and Flexible) over five years based on an initial £1,000 investment according to FE data. No fund from the Mixed Investment 0-20% Shares sector features in the top 20. The Mixed Investment 40-85% Shares sector was the best performing, with nine funds from the space featuring in the top 20. Funds are able to operate outside the sector definitions for short periods of time, but if they do so for anything more than three months, the IA approaches the managers for a discussion as to whether the fund is placed in the right sector.
The £207.5m Royal London Sustainable World Trust fund is the top performer, returning 11.4 per cent annually over five years (a total £1,713). The fund, run by Mike Fox, has six different assets within its portfolio (although almost 80 per cent is currently in different equities), with the highest allocation (51.1 per cent) in global equities. When it comes to regional and sector breakdown, the fund is also very diverse.
