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Pros and cons of multi-asset for retirees

This article is part of
Guide to Multi-Asset and Pensions

The basic argument put forth by multi-asset managers, and articulated by Nick Samouilhan of Aviva Investors, is multi-asset funds can deliver a diversified investment portfolio and thus compared to many alternatives a better risk-adjusted - and now often income-based - return.

Due to being able to allocate between asset classes to deliver different outcomes, Mr Samouilhan says multi-asset funds provide a better investment option as their goals can be better aligned with what clients actually want.

Vincent McEntegart, manager of the Kames Diversified Income fund, argues you can get a great vehicle that can invest in a broader range of assets to provide an income and thus beat the rates available on annuities, for example, which have to provide expensive guarantees.

He says managers have a broad remit to seek out the best opportunities in terms of yields and manage the currency risk of investing overseas, helping to “surpass existing annuity rates”.

Mike Parsons, head of UK funds sales at JP Morgan Asset Management, echoes the point and argues, compared to annuities, multi-asset funds are easy to understand, cost effective and lack expensive guarantees.

In today’s market environment, Mr Parsons says investors have to think beyond traditional sources of income to beat inflation and a multi-asset income fund that draws on global security selection can provide compelling income and returns while managing risk and limiting volatility.

Of course, in discussing how these funds can help manage investment risk both Mr Parsons and Mr McEntegart highlight the key issue with these funds relative to more secure sources of income such as an annuity: that there is risk at all.

With an annuity the income is guaranteed, with no risk of funds underperforming targets, markets tanking or other potential pitfalls.

Even for those seeking to build a more investment-based portfolio solution post-April, the risks and relative return merits of multi-asset must be managed to relation to the specific characteristics required to meet what is likely to be an increasingly phased retirement.

Relative to alternative investment options investor may seek to utilise in retirement post-April, Mr McEntegart says multi-asset investing provides expert diversification across asset classes and therefore risk management, which could provide better returns than simply doing it yourself.

Mr Samouilhan adds, though, that there are major differences in how different multi-asset funds do what they do, with some likely to be more suited to the at-retirement market than others, and as such it is difficult to find the best fund without some research.

Peter Toogood, investment director at City Financial, agrees that multi-asset funds are designed to allow money to be managed through the investment cycle and argues this is their key advantage.

Their key disadvantage, he says, is that they are relatively expensive unless they are populated by passive vehicles. Many multi-asset funds employ a number of single asset managers to run mandates or simply buy into a range of underlying single asset class funds, meaning they have to pay two layers of management charges.