Markets hovering in wait-and-see mode

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Multi-Asset Investing - June 2016

Markets hovering in wait-and-see mode

In periods of market volatility, it is little surprise that many investors look to diversify their portfolios, with many choosing multi-asset vehicles.

Figures from the Investment Association (IA) show that Mixed Asset funds were the second most popular asset class in March with net retails sales of £190m, beaten only by equities.

But even with the benefits of diversification the fact that most asset classes and markets have struggled means that multi-asset funds have also suffered, with the IA Mixed Investment 20-60% Shares, Mixed Investment 40-85% Shares and the Flexible Investment sectors all lagging behind the UK All Companies and Global sectors in the six months to May 25 2016. Only the Mixed Investment 0-35% Shares sector outperformed the UK All Companies and Global equity counterparts with a return of 1.2 per cent, data from FE Analytics shows.

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David Marchant, manager of the CF Canlife Portfolio funds, points out that while some multi-asset funds have produced modest gains in 2016, it has been “a bit of a challenge”.

“If you look at equities, UK equities are pretty much flat year to date, the US is up a fraction, and most other markets are down, so equities have not added a lot. Government bonds continue to remain at very low levels, while corporate bond spreads, after widening in the early part of the first quarter, have declined, and property is flat as well. It has been a tough first few months for markets generally.”

He attributes this to a number of factors including hints of weakness in global growth, with UK and US forecasts moving lower, and concerns at the start of the year about China.

“More recently for sterling assets we’ve had the worries around a ‘Brexit’ and the current uncertainty, at the margins, has put people off investing and has put a lid on the performance of many asset classes.”

As we move into the second half of the year, the result of the EU referendum on June 23 is likely to dictate how asset classes, and therefore multi-asset portfolios, perform in the short term.

Should the UK vote to remain in the EU, Mr Marchant says: “We would expect a modest bounce in equity markets in the UK and, to a lesser extent, in Europe probably. I’d imagine a slight rebound in investment spending. There is a case to say if you’re looking at making a significant investment in the UK, you’d be wise to wait at least a few more weeks to see the result of the referendum and whether it affects your decision. I’d expect a rebound in investment activity post that vote, and I’d hope growth expectations recover slightly as the year progresses.”

Although he warns: “Of course, all bets are off in a sense if we vote for a Brexit. While we might hope for the best in terms of asset prices, you have to prepare for the worst, so our relatively defensive positioning in terms of bonds should help.”