Multi-assetMar 22 2012

The good shepherd of clients

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ByMelanie Tringham

Multi-asset funds have been receiving a lot of attention of late. Criticised for misleading investors for the amount of risk the funds involved, the fund management industry has been forced to reclassify them.

But it has not been an easy path. Initial recommendations from the IMA were strongly criticised, but in November last year an agreement was reached.

The sector classifications for the make-up of the funds have changed to reflect simply the share constituent. As of the end of April, fund managers will no longer call their funds ‘cautious’, ‘balanced’ and ‘active’ managed, but instead ‘mixed investment’, with the constituent of shares varying between 0 per cent to 35 per cent, 20 per cent to 60 per cent, 40 per cent to 85 per cent shares and ‘flexible investment’.

Fund managers are currently making their changes, which varies from provider to provider.

Fidelity, for example, is finding that some of its funds that are benchmarked to their peers will now have a different benchmark, because the peers will be changing themselves. This could have a subsequent impact on the performance of the funds themselves.

Stephen Edgley, investment director of the investment solutions group of Fidelity, said: “Cautious Managed sits across two new sectors - 0 per cent to 35 per cent and 20 per cent to 60 per cent equities. Our funds are going to have to decide which sector to go into.

“Our competitors are doing the same thing. The averages are now changing and the group of funds which we are benchmarked against will change. Some will go in one sector and some another.”

The move will affect three of Fidelity’s multi-manager funds and a small number of retail funds. Apart from resetting the benchmarks, Fidelity will have to make changes to the fund prospectus and other documentation, but Mr Edgely believes it will be finished in time.

He said: “It will have an effect on performance comparison for funds.”

The multi-asset industry has had other issues on its agenda. The biggest issue to hit financial advisers is the RDR, and fund managers are hoping that advisers will resort to multi-asset funds more, as they look to rationalise their time and outsource investment decisions.

Phil Reid, head of UK retail distribution of HSBC Global Asset Management, said he has seen a big spike in demand in recent months.

He said: “The increased pressure of making investment decisions will mean that some IFAs don’t want to specialise in that area, they will outsource some of the major building blocks to a provider, and add value on the planning side.”