The future of multi-asset: Complex but convenient?

The future of multi-asset: Complex but convenient?

As far as retail investor interest is concerned, 2016 may have just been the year of absolute return. A year in which a variety of mainstream asset classes performed pretty well was nonetheless characterised by shaky sentiment and an air of caution throughout.

In terms of fund flows, that meant money moving into the Targeted Absolute Return sector like never before. And the bulk of this money was into multi-asset absolute return funds – products that invest across a range of asset classes in an attempt to achieve a positive return in all market conditions.

Investor sentiment may not always be as negative as it was in 2016, but the data show that the success of Standard Life Investments’ (SLI) Global Absolute Return Strategies (Gars) fund was not a one-off. That fund has amassed more than £25bn in retail assets since launch in 2008; rival versions launched by former SLI employees – the Aviva Investors Multi-Strategy (Aims) and Invesco Perpetual Global Targeted Returns (GTR) ranges – now look well on their way to doing something similar.

For advisers, it all makes for an increasingly crowded landscape. Alongside the traditional balanced funds of old, they now have products managed to a particular risk or volatility target, unconstrained portfolios with the flexibility to invest across the market spectrum, and the absolute return variants which attempt to do likewise while limiting downside risk. Multi-asset has become not so much a one-stop shop as a whole high street full of different outlets.

A new solution

Set against a backdrop of advisers’ growing interest in providing a simple solution for their smaller clients, there are two other factors behind this proliferation of products: an attempt to learn the lessons of the past, and the aim of avoiding making new mistakes in future.

In the aftermath of the dotcom boom, multi-asset strategies had already begun moving on from the relatively fixed weightings to bonds and equities that characterise balanced funds. But the financial crisis brought a repeat of risk assets’ mass underperformance and accelerated a desire for products that delivered an absolute outcome rather than a relative one. After all, minor index outperformance is of little use at a time when that benchmark has fallen 30 per cent.

The greater flexibility touted by many newer products is also a reflection of a longer history. The 30-year bull-run for bonds, traditionally the safe asset of choice for a diversified portfolio, has left managers wondering what happens when fixed income goes into reverse. Enter a portfolio that is more adaptable but run to particular risk limits.

Andrew Cole, co-manager of the Pictet Multi-Asset fund, has been running similar portfolios for more than 15 years, largely at former employer Barings. He believes the concern over bonds, while justified, may have resulted in some multi-asset funds being used for the wrong purpose.

“The fact that some providers have increasingly sold their product on the basis of its risk constraints means they will have a different type of client base – people owning it as a bond replacement rather than an equity replacement.”