Multi-assetMar 22 2012

Many mouths to feed

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ByAndrew Whiteley

Perhaps the major beneficiaries of the recent FSA focus on risk analysis and suitability have been the providers of multi-asset solutions to the IFA market.

This enhanced scrutiny coupled with the increase in volatility that we have witnessed in traditional asset classes – who would have picked index-linked gilts and Japanese equities as the top performing asset classes in 2011 – has highlighted the need to cover all the bases within your chosen investment proposition.

The multi-asset approach is not new. It has been with us in some guise or other for a long while – the Investec Cautious Managed fund was launched in 1993 – but what seems to be appealing to IFAs looking to build compliant investment propositions for their clients is the ability to offer a range of risk-graded solutions using ostensibly the same assets with varying allocations to each.

Traditionally this would have been achieved either through a single strategy unit trust such as the aforementioned Investec fund or later through a fund of funds arrangement. These funds tended to sit in the IMA

Balanced and Cautious Managed sectors and did not historically form part of a full range spanning the entire risk spectrum. Back in the days when your typical risk analysis consisted of asking your clients where they thought they sat on a risk scale of 0 to 10, these funds tended to satisfy the vast majority of answers and attracted significant inflows.

While they were marketed as multi-asset solutions, in reality the funds really only paid lip service to most asset classes outside global equities and bonds but they offered a handily packaged diversity with actively managed allocations.

As the market grew and as more asset classes were added to the mix, the fund of funds structure became the default for most offerings and several managers saw huge inflows, with Jupiter’s Merlin range being perhaps one of the best supported with nearly £7bn held across the four portfolios at the time of writing.

All good so far but unfortunately the retail distribution review has alerted everyone’s attention to the rather large elephant in the room wearing a big T-shirt with the word ‘Charges’ printed on it.

Access to a wide range of asset classes does not come cheap. The TER of the Jupiter Merlin Income Portfolio Institutional fund is 1.93 per cent which is awkwardly close to 2 per cent.