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.

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].”


Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. Which sector had the highest average return over 5 years according to FE?

  2. What percentage of advisers have moved single asset income clients to multi-asset income according to Heartwood Investment Management?

  3. What does Mr. Howse say about volatility?

  4. What was the five year return for the third top fund in the top 10 mixed investment 40-85 per cent sector?

  5. What does Mr Lindfield attribute the rise of multi-asset funds as retirement income vehicles?

  6. What does the CF Ruffer Japanese mostly invest in?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • 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.

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