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Multi-asset against Multi-manager

This article is part of
Guide to Multi-Asset vs Multi-Manager

A multi-asset approach to investing can be simplified as a “not all your eggs in one basket” approach to investing across different asset classes, according to Paul Rutland, investment business development manager of Prudential.

He says the recognised major asset classes are equities, fixed interest, property and cash.

In practice, Mr Rutland says it is sensible to break these asset classes down further: equities by geographical location; fixed interest by type (government bonds or corporate bonds) and by quality; property by location and nature (securities or bricks and mortar) and, finally, cash by reference to actual deposits or ‘near cash’ notes.

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In addition, Mr Rutland says some clients may seek further diversification from exposure to commodities or commodity funds.

He says: “Most investors will invest in multi-asset by packaged funds of one form or another, whether that is a simple managed fund (a single fund holding different asset classes), a ‘fettered’ fund-of-funds (single fund holding other single asset funds from the same management group) or ‘un-fettered’ fund-of-funds (where a fund manager is at liberty to invest across fund manager from different investment groups).”

Peter Fitzgerald, head of multi-asset retail funds at Aviva Investors, says the assets will generally include equities; large cap and small cap, fixed income; government, investment grade bonds, high yield, emerging market debt and alternatives; and, absolute return strategies, property, commodities or hedge funds.

Francis Ghiloni, director of distribution and client management at Scottish Widows Investment Partnership, says multi-asset investing involves combining assets that provide different levels of risk and return in an optimal mix to achieve a desired level of return at the lowest level of risk.

Ideally, he says these assets should have low correlation to each other in different market conditions.

Mr Ghiloni says: “The aim is to create a portfolio that enhances diversification, reduces risk and smooths returns. A multi-asset fund provides a vehicle to allow investment in this mix of assets.”

Multi-manager is a reference to the fund management team being able to invest across a broad range of funds from other fund management groups or pulling in on the expertise of other fund managers by mandating them to manage assets in their specialist area.

Multi-manager is essentially delegating security selection within different asset classes to specialist managers who will in general work within their own area of specialisation rather than try to manage an overall portfolio.

In many cases, Mr Fitzgerald said there is actually no difference between multi-asset and multi-manager funds.

He said: “Multi-asset describes the approach to portfolio construction, multi-manager deals with how the portfolio is actually implemented or built.

“You could have a multi-asset portfolio which is multi-manager or not and likewise you can have a multi-manager portfolio which invests in multiple asset classes which means it is a multi-asset portfolio.”

Generally speaking, Prudential’s Mr Rutland says multi-manager is a type (or subset) of multi-asset.

That means after choosing to invest across asset classes, a fund manager may choose to also invest using the expertise of specialist fund managers in each asset class, from outside of his own fund management group.