Multi-asset funds: Trending assets

Multi-asset funds have been growing in popularity. The RDR will mean the regulator paying closer attention to the suitability of investments and the thoroughness of the selection process, so the funds are seen as an attractive form of outsourcing.

Rather than paying the high fees or meeting the asset levels that discretionary fund managers demand, multi-asset funds aim to offer diversity at a lower cost, for those with less money tucked away. It’s clear to see why their appeal is high.

IMA figures on fund inflows, shown in Graph 1, highlight this gradual rise in popularity. While the impact of the recession is shown in the data at 2008 compared with 2007, the popularity of the funds has not diminished over the longer term. By 2009, both sales and funds under management hit higher marks than 2007, rising further in 2010.

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While on first impression it appears that popularity dwindled in 2011, compared to 2010, this was indicative of a trend seen across the industry, not just affecting multi-asset sales. Regardless of this blip, funds under management in quarter one of this year, the latest data available, is 158% of the 2007 year-end high.

With more launches to market in recent years and increasing interest from IFAs and investors alike, this popularity shows no signs of abating. But there are concerns that multi-asset is the next fad that providers want to throw their marketing money at and that advisers want to get involved in.

Understandably, fund managers in the sector dispute this. Justin Onuekwusi, manager of the multi-asset range at Aviva Investors, says, “You have to assess if it’s a trend or if it’s a fad. But when you look that funds have been managed this way since the 80s, if it’s a fad it must be a long-term one.”

However, if more providers continue to move into the market, as expected, the differences between funds will narrow and the risk of the true intention of the funds may be lost, making advisers’ jobs far harder. As with previous ‘’trendy’ sectors, only time will tell if the products can go the distance.

Passive vs active

The active versus passive will rage longer than the 100-year war and multi-asset does not escape this. A new raft of multi-asset funds are emerging that use passives to access certain markets, the goal being to get exposure at a lower cost than active. But as ever, fund managers disagree on the approach.

Onuekwusi is fan, saying that each of his range of five funds tend to be 70% passive and 30% active, although this is not fixed. He adds that it is important that the fund remains cost effective and competitive. “I believe in blending active and passive to get a risk-adjusted return,” he adds.

With more multi-asset funds being launched it is likely that this increased competition will bring price reductions, as funds aim to be cheaper than rivals. For many, it is then natural that passive will play a larger role.