What's behind fund choice?

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Funds for managing in volatile times

What's behind fund choice?

Were all advisers able to select the “right” funds in general, let alone multi-asset funds in particular, then investment advice for clients would be a piece of cake. The reality, of course, is the opposite and every day somebody somewhere rolls out a new investment idea or vehicle, marketing it as the next best thing since sliced bread.

In a nutshell, multi-asset investing is a means to get a wide and diversified investment mix across a range of sectors and assets. The underlying investments will include bonds and equities, but should also include a more alternative view with commodities and infrastructure exposure. Spreading the net widely provides a high level of diversification.

To be able to select multi-asset funds for a client portfolio, the adviser must understand the client's objectives and have established their appetite for risk and reward. The route for fund choice is:

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  • Factfind.
  • Understand clients' objectives.
  • Establish their attitude to risk.
  • Make fund choices.

Each step is dependent on the previous one and helps get a clear strategy in place before making any investment.

With this process agreed, due consideration can be given to the choice of multi-asset funds, which is growing all the time and I would suggest adding to the complexity of fund selection for both growth and income oriented clients. 

A robust investment selection tool or process is essential to be able to cut through the marketing and see the true credentials of funds. Look at the different permutations of what is available.

Something that often gets overlooked when considering multi-asset investing is that some managers might choose to build their fund around carefully selected equities and bonds while others work with a different, but equally valid, approach through the multi-manager model and invest in a range of funds. With the multi-manager approach, some offerings will be fettered and use in-house funds while others will use various investment house funds. During different parts of the economic cycle, many multi-asset managers will use a mix of active and passive tools to manage upside benefits and downside risk.

Investors and their advisers have a wide choice. Table A highlights some examples.

Table A

Income and/or growth

Premier Multi-Asset Distribution

Multimanager funds

Jupiter Merlin Portfolio range

Defensive funds

Newton Real Return

Specialist funds

BlackRock Dynamic Diversified Growth A Acc

If we take a moment to look under the bonnet of the Premier Multi Asset Distribution fund we can see what is included under this multi-asset umbrella, Table B shows its six top holdings.

Table B

Standard Life Investments UK Equity High Income Inst S Inc


Schroder Income Fd Z Inst Inc



Franklin UK Equity Income W Inc



Rathbone Income Inst Inc



Fidelity Moneybuilder Dividend Y Inc



Polar Capital European Ex UK Inc



While the Newton Real Return's breakdown in Table C looks very different.

Table C

United States of Amer Treas

Notes: 1.75% BDS 30/11/21 USD100


United States of Amer Treas

Notes: 1.75% BDS 31/12/20 USD100


Novartis AG


Microsoft Corp


Wolters-Kluwer NV


The message shown by the holdings breakdowns in tables B and C is that within the multi-asset fund arena in the IMA Mixed Investment sector, the good quality funds are spreading their asset allocation widely and in turn managing the potential risk through this diversification strategy. The two fund breakdowns include such diverse holdings as pharmaceuticals and technology and healthcare and treasury stocks, which is a truly mixed bag. 

Explaining how much risk each type of fund carries is where advisers give real value to their clients. The understanding of risk is essential and, coupled with the asset allocation of a portfolio, goes a long way towards managing the inherent risk within a portfolio. Incorporation of a multi-asset component in a portfolio provides additional risk management through tactical plays alongside the bigger strategic picture.