When thinking about multi-asset investing, it is unlikely that the first thing that springs to investors’ minds is distribution funds.
Originating in the life market, some of these offerings – such as James Vokins and Chris Murphy’s Aviva Investors Distribution fund and the Axa Distribution fund run by Richard Marwood and Jim Stride – have been running for more than two decades.
The original distribution funds were designed to provide a steady income and some possibility of long-term capital growth using a combination of equities and bonds to try and smooth out any market volatility, with many traditional distribution funds still using an asset allocation mix of somewhere between 50-60 per cent in equities and the remainder in fixed income and cash.
In some ways these vehicles can be considered the forerunners of today’s multi-asset funds, as they mix a combination of asset classes, albeit only two, in an effort to provide steadier returns.
And with the pension reforms about to be implemented, which will allow retirees to take their pension pots and reinvest them, a more cautious approach such as this could be attractive to those about to quit work.
But Anthony Gillham, a portfolio manager on the multi-asset team at Old Mutual Global Investors, points out that one of the disadvantages to the traditional distribution model is that they are not outcome focused.
He explains: “Today the best multi-asset funds are outcome focused. It matters because it ties what the fund manager is incentivised to do with what the investor is trying to achieve.
“So in the old world of balanced, cautious, distribution, investors were kind of made this nebulous promise of income with the prospect of some capital growth, but in reality it is hard to pin down what that means; it usually came down to an arbitrary mix of 60 per cent equities and 40 per cent bonds.”
In contrast, he argues that current multi-asset funds explain what they’re going to do, how they will achieve it, and how it aligns with clients’ goals, as well as making full use of the wider investment universe.
As a result, multi-asset funds are normally much more diverse, being exposed to property, commodities, fixed income alternatives and even long/short options.
“In this outcome-focused world, the one-size-fits-all approach of the past is no longer sufficient, so we’re not simply looking to repurpose existing multi-asset solutions to meet different client outcomes,” adds Mr Gillham. “Investors and advisers need to be more discerning when choosing a multi-asset fund, [ensuring] it has been designed from the ground up to do what it sets out to.”
That said, the 21 funds in the IMA sector with ‘distribution’ in the title have delivered a three-year return of 28 per cent to October 24 2014, which outperformed all four of the IMA Mixed Investment sector averages. They were only beaten by the IMA UK Equity and Bond Income average return of 32.18 per cent.
So while these forerunners of the multi-asset space may be considered dinosaurs by some, in the area of returns, it seems experience is still paying dividends… for now at least.
Nyree Stewart is features editor at Investment Adviser
