The combination of a low interest-rate, low-growth environment, volatile markets and the introduction of pension freedoms, means the diversification benefits of these strategies and their potential to generate income have attracted retail inflows.
Figures from the Investment Association show the mixed asset sector has been among the top three best-selling asset classes in nine of the past 12 months to the end of September 2015. It is also the only asset class, aside from property, that has maintained positive net retail sales each month for the past year, with inflows peaking at £449m in July 2015.
As we head into 2016, slower growth in China and continuing geopolitical concerns could keep multi-asset at the forefront of investors’ minds.
David Jane, co-manager of Miton’s multi-asset fund range, suggests there are currently two conflicting aspects of the market that could affect investors.
“Firstly, earnings growth is facing multiple headwinds of slow sales, slowing share buybacks, rising wages and rising interest charges. This may mean forecasts for next year are likely to experience further downgrades and valuations will rise even with a flat market. On the other side of the coin, it may be the case that the attractiveness of equity versus other asset classes becomes even greater… Rising short- and longer-term interest rates [are constraining] government and corporate bond returns, and stresses in the high-yield market [are increasing].”
In addition to general market uncertainty, the search for income remains a key priority. This means multi-asset funds offering diversification with an income focus are likely to remain attractive.
Shoqat Bunglawala, part of the multi-asset investment team at Goldman Sachs Asset Management, notes: “While we believe fixed income and equities remain core elements of a well-diversified portfolio, investors should also incorporate other sources of income such as real estate investment trusts, emerging market debt, bank loans and buy-write options strategies. An expanded opportunity set may provide a higher yield, better diversification of sources of risk and income, and greater interest rate resiliency than traditional fixed income investments.”
But Simon Evan-Cook, senior investment manager at Premier Multi-Asset Funds, points out that at an asset level it is difficult to find a simple answer to the question of income.
“This is because years of quantitative easing and rising asset prices have eliminated the obvious bargains. The key is in selectivity. There are many UK companies, for example, that will pay a decent and rising income. But there are just as many that won’t. The trick will be choosing between the two,” he explains.
Meanwhile, Mr Bunglawala warns investors not to overreach for income. “Investors often move into higher yielding equities, take more credit risk by pushing down in credit quality, and take on more interest rate risk by buying longer-dated bonds,” he explains. “In the current environment, pulling any one of these three ‘yield levers’ too aggressively may pose significant drawbacks.”
Nyree Stewart is features editor at Investment Adviser
In this special report
Beware of biases that trigger rash decisions
Choose wisely amid volatility
World in transition spawns multiple risks
Market unease is simply a blip
Changing markets call for a dynamic approach
Low-cost option makes money as prices retreat
China’s influence on global markets is likely to diminish
The asset class pick-and-mix