Delicate balance

This article is part of
Multi-Asset Investing - October 2013

Adrian Lowcock, senior investment manager at Bristol-based Hargreaves Lansdown, said: “The effects of the global financial crisis – lower economic growth, contraction in the corporate sector, and near-zero interest rates in many countries, especially the developed markets – have led many investors to re-assess their risk/reward parameters.”

With many of the investments historically regarded as being safe-havens – either by dint of their risk profile being perceived as growing exponentially or as a consequence of their returns being regarded as inadequate compensation for that risk – the retail sector was more willing to look at a broader investment universe.

“US long bonds were offering no real return for a long time, and nor were gilts, and the ongoing political problems in the eurozone, together with the lower rates there, prompted investors to look further out to the risk curve, and into different asset classes,” he added.

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Even today this low yield in the traditionally popular investments in developed markets persists, with the Barclays 2013 Equity/Gilt Study, for example, projecting that the UK government bonds will deliver a negative 2 per cent real total return each year over the next five years.

As a logical extension of this, then – and of the dearth of time and market expertise that many retail investors have to assess relative returns across the fixed income, equities, currencies, and commodities investment universe – the rising popularity of funds that offered all of these was only to be expected.

Such a change has only been exacerbated by the advent of the RDR, according to Mr Lowcock, with its associated corollary reduction in costs of fund management in general and the greater transparency of reporting that resulted from the review leading to an expansion in the range of strategies being offered to advisers and their clients.

James de Bunsen, fund manager for Henderson Global Investors in London, said: “In the current investment environment, which remains dominated by the vagaries of quantitative easing, particularly in the US, it makes a lot more sense to diversify into a range of assets rather than just one.

“As an adjunct to this it makes more sense to invest in multi-asset funds rather than multi-manager ones, which offer less variety of asset types under one manager’s umbrella,” he added.

All the more so, as, despite the concomitant drop in equities and bond returns for the first few months after the onset of the financial crisis, the more usual marked differentiation between assets’ pricing has returned to the marketplace, according to Peter Fitzgerald, head of multi-asset retail funds at Aviva Investors.

These parallel moves were strengthened by the US’s monthly $85bn bond-buying programme, the Bank of England’s £375bn asset purchasing programme, the Bank of Japan’s wide ranging QE as a part of attaining its two key targets of 2 per cent inflation a year and a 3 per cent nominal GDP rate, and the European Central Bank’s long-term refinancing operations (QE by any other name).

As is to be expected, said Mr Fitzgerald, a heavy equity component in the asset mix of the vast majority of multi-asset funds has been a constant feature of these funds since 2007/08, not just because of the ‘great rotation’ that occurred from fixed income products to equities from that point, but because equities-based funds are an easier sell to the retail sector generally.