Exploiting key market differentials

But more recently investors have come to want more certainty. The financial crisis invoked such volatility across the board, among the entire range of asset classes, that many investors got their fingers burnt. At the same time interest rates have struggled to get anywhere at all, making saving in cash an unlikely option.

More have been asking for a specific return at the end of the year, but without taking the associated risks. As a result, many multi-asset funds have sprung up, to offer investors access to a variety of asset classes and to try and offer a specific return but with minimum risk.

There has been greater impetus in recent months, with the Budget announcements earlier this year focusing people’s minds on the final pot they achieve when they hit retirement.

A deviation of multi-asset funds is the multi-strategy fund. Used very loosely in similar contexts as a multi-asset fund, the multi-strategy fund uses more hedge-fund style techniques, such as shorting and using the relative differences of various markets or asset classes.

Christopher Nichols, investment director for multi-asset investment at Standard Life Investments, who oversees the Global Absolute Return Strategies (Gars) fund, said that he seeks out comparisons where he can make money by taking a view on the relative performance of different markets, or volatilities or currencies.

He said: “Where we are less certain on an overall direction of an equity but we believe in the difference between one and another, say we think German equities will outperform French equities, we go long on DAX futures and short on CAC futures. So in the event that Germany beats France, if all equities were to go down but Germany goes down less, then we make a positive return on that strategy.”

Another example he uses is if the fund takes the view that the slow growth in the US economy will affect different sectors in various ways, he can use that perspective, by going long on US tech stocks but short on US small caps.

Mr Nichols said: “Multi-asset has lots of different, more conventional assets; multi-strategy is both multi-asset and emphasises the more relative value between markets, including volatility, inflation and foreign exchange.”

In current times multi-strategy tends to be used interchangeably with multi-asset, but it should not be confused with multi-strategy hedge funds. Ten years ago, the term was more closely associated with a certain approach of hedge fund, when investors compared them more dramatically with the huge managed funds.

There would be single strategy hedge funds, such as fixed income arbitrage, or multi-strategy hedge funds, that use a variety of strategies.

Mr Nichols points out that hedge funds’ strategies are completely different to the multi-asset variety. Multi-asset funds look to achieve a certain goal with less risk, whereas hedge funds decide how much risk they are going to take and try to maximise the returns from that.

The Gars fund has achieved 8.2 per cent gross return since its inception in 2006. Mr Nichols said: “We expect to deliver the return with a third or half of the investment risk of equities.” The fund has 5.5 per cent volatility.

Another way to explain the difference can be summarised by Paul Niven, a fund manager of F&C investment trust. He said: “Multi-asset is about asset allocation – strategic or tactical, multi-strategy incorporates different risk exposures or different risk strategies.

Melanie Tringham is features editor of Financial Adviser