According to Investment Association (IA) figures for March 2016, mixed asset funds were “in vogue” and were the second best-selling asset class with net retail sales of £190m. Of the mixed asset sectors, funds in the IA Mixed Investment 40-85% Shares sector were the most popular, generating £95m in net retail sales – making it the fifth bestselling IA sector of the month.
Guy Sears, interim chief executive of the IA, comments: “Retail investors remained cautious and reduced their holdings in equity funds, looking instead to multi-asset, absolute return and fixed income products.
“It is a sign of the times, with changing pension regulation and uncertainty in the global economic outlook, that multi-asset and absolute return products have been popular with retail investors. These sectors have grown in recent years as our members have introduced new funds to meet investors’ changing needs.”
Vincent McEntegart, manager of the Kames Diversified Monthly Income fund, says there has been a significant pick-up in assets flowing into multi-asset products.
Asset managers have also responded to the pension reforms by bringing to market multi-asset funds with an income component.
“For some investors, an attractive risk-managed total return is desired. For others, an attractive level of income with the potential for capital growth is what they need,” Mr McEntegart suggests. “Historically, taking investment risk once we have retired has been confined to our non-pension savings. But in a world of low growth and low interest rates, retirees needing to earn an income from their pension pots are having to take on some investment risk. Cash in the bank may feel safe but it will be many years before interest income on cash will be high enough to be regarded as a source of retirement income.”
So how do multi-asset and income strategies meet the needs of investors with greater responsibility to fund their retirement as a result of pension freedoms?
Sonja Laud, manager of the Baring Multi-Asset Income fund, says the changes coincide with an uncertain investment environment, where interest rates are low and unlikely to rise anytime soon.
“Even property may not offer the same yield that investors have counted on until now,” she admits. “For many investors, the question is where to find a retirement income solution that combines sustainable income generation with rigorous risk management. In single-asset-class funds, investors often have to accept higher levels of risk for the same level of income.”
She believes multi-asset income funds can provide a solution to this dilemma: “Within a multi-asset income fund, the manager can tactically adapt and diversify the asset allocation of the portfolio, aiming to gain exposure to rising asset classes to capture growth, and limit exposure to falling asset classes to protect capital, while exploiting income opportunities when and where they arise.”
It is still early days for those multi-asset income funds launched in response to the pension reforms. The next few years will test whether they are able to deliver the promised capital growth and income while remaining truly multi-asset in their investing approach.
Ellie Duncan is deputy features editor at Investment Adviser