Introduction
It is little wonder, then, many investors are continuing to hedge their bets and focus on diversification through multi-asset funds. Figures from the Investment Association show mixed-asset funds were the second best selling asset class in March, with £190m of net retail sales, beaten only by fixed income funds.
Guy Sears, interim chief executive of the IA, noted that in March retail investors “reduced their holdings in equity funds, looking instead to multi-asset, absolute return and fixed income products”.
He added: “With changing pension regulation and uncertainty in the global economic outlook, multi-asset and absolute return products have been popular with retail investors.”
| PICKS |
| Newton Multi-Asset Growth A member of the 2015 Investment Adviser 100 Club, this £1.5bn fund is managed by Christopher Metcalfe and sits in the IA Flexible Investment sector. The portfolio aims to achieve capital growth and income from UK and international securities. The fund is ranked in the top 10 of its sector across one, three, five and 10 years, according to FE Analytics data, while the five-year return of 50.1 per cent outperforms the sector average of 21.4 per cent. The fund’s largest weighting is to consumer services at 22.5 per cent; its largest regional allocation is to the UK at 39.7 per cent. Alliance Trust Sustainable Future Absolute Growth Launched in 2001, this £108m fund is managed by Simon Clements and Peter Michaelis. It only invests in companies that meet its rules for environmental and social responsibility, and focuses on five themes including climate change and energy efficiency, and governance and risk. Sitting in the IA Flexible Investment sector, the fund is top quartile across one, three, five and 10 years to May 18, with the five-year return of 36.3 per cent outperforming the sector’s 21.4 per cent average. EDITOR’S PICKRoyal London Sustainable World Trust
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But while investors may be looking to multi-asset products for income and to minimise risk, with the EU referendum a close contest and the US Federal Reserve suggesting a second interest rate rise could come sooner than some think, potential headwinds remain.
Euan Munro, chief executive of Aviva Investors, notes: “Recent volatility in global financial markets reflects a key inflection point. The long journey towards a zero-interest-rate world provided a significant tailwind for all financial assets. We believe that period is coming to an end and investors now face the challenge of generating reliable capital growth or income in an environment of very low yields. Living in a zero-interest-rate world is going to be fundamentally different from travelling towards one.
“Since the financial crisis, central banks have helped cushion investors from extreme turbulence by cutting interest rates and injecting liquidity into the system. This fed through into asset prices as the market hung on central banks’ seemingly limitless power to ‘kick the can down the road’. Judging by events in the first quarter, it now appears to be questioning whether banks are running out of road. If, as we expect, we are entering a period where the causes of volatility are changing, investors will need to look beyond the turbulence and identify key drivers of long-term investment returns.”
Peter Askew, co-manager of the T Bailey Dynamic fund, points out that while much media commentary surrounds the referendum on June 23 and the US election in November, bookmakers suggest a ‘remain’ outcome and a Clinton/Democrat victory “are odds-on”.
Instead, he highlights the tightening of labour markets that can influence wage inflation and profit margins. “Developed market central banks fear halting anaemic economic activity and will be reluctant to make changes in interest rates in response to any uptick in inflation, which will also be nudged up by the base effect of commodity price falls dropping out of the year-on-year calculations.
“We are at the later stages of a seven-year recovery where QE has boosted most asset prices. QE has also commoditised most bond markets where value is hard to find. With equity market valuations ranging from fair value – at best – to stretched, it is crucial to focus on themes that support value and have some reference to inflation.”
