Multi-asset funds: special report

  • Gain an understanding of the current state of the top multi-asset funds
  • Be able to describe the sentiments of fund managers mentioned in the article
  • Comprehend looming prospects for multi-asset funds.
Multi-asset funds: special report

Multi-asset funds have become infinitely more wide-ranging since the days of balanced fund dominance. As they stand today, the portfolios tend to champion greater diversification, and as a result often encompass a wide range of asset classes across various global markets and sectors.

Advisers and other fund selectors’ growing desire for outcome-focused funds, targeting a specific type of return, has added another layer of complexity. Risk-rated, risk-targeted and volatility-targeted funds are all now available in their droves.

The gradual diversification of multi-asset investing may have improved prospects for a number of investors, particularly those that favour a more cautious, hands-off approach. But with a wider range of options comes the potential for greater confusion.

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It has become increasingly difficult to classify multi-asset funds in strict terms in recent years. There are hundreds of these funds sitting in the Investment Association’s (IA) Unclassified sector – a grouping that is typically not even included in the average assessment of the IA universe.


Category quandary

Until now, this universe has had four distinct categories for multi-asset funds: Mixed Investment 0-35 per cent Shares, which, in short requires funds to hold at least 45 per cent in investment grade fixed income and cash and a maximum exposure of 35 per cent in equities; Mixed Investment 20-60 per cent Shares, which requires a minimum of 20 per cent equity exposure and 30 per cent fixed income and cash; Mixed Investment 40-85 per cent Shares – a minimum of 40 per cent equity exposure and no minimum fixed income or cash requirement; and Flexible Investment, which has no restrictions on equity exposure, but is expected to contain a range of holdings.

A change to this set-up is now afoot. The IA launched a consultation on how to better classify of outcome-focused funds in 2015, with a view to better serve around 200 such funds, which sat in the Unclassified sector. 

But drawing conclusions proved difficult, and even the eventual solution – a Volatility Managed sector – has been delayed for several months past its original November launch date. The sector is finally due to launch on 3 April, with around 70 funds expected to be included in the first instance. Each will have, according to the trade body’s definition of the grouping, “a common characteristic of targeting a client’s attitude to risk set out in terms of volatility”.

Paul Lindfield, director of wealth management at Manchester-based financial consultancy firm, Sedulo, welcomes the new classification. He states that having the vast majority of the company’s multi-asset funds lumped in the Flexible Investment sector is “like comparing an apple with a watermelon”; a difficulty he believes the Volatility Managed sector may do away with.

“What we can see is rather than just performance and lumping them into a sector because we don’t know how to categorise them, is actually categorising [funds] on volatility, and matching them to performance,” he says.

Andy Howse, head of global investment directing, multi asset at Fidelity International, also believes the new sector will help to differentiate between multi-asset funds. Mr Howse says: “When thinking about multi-asset performance, you really need to make sure that you’re comparing like with like. A volatility fund that is categorised in the Mixed Investment 40-85 per cent Shares IA sector, for example, would be aiming to do something very different to the majority of funds found in the Mixed Asset sectors [as a whole].”