Traditional multi-asset has once again become the favoured choice for investors looking to navigate tricky market conditions.
While the dominance of the IA Targeted Absolute Return sector among retail sales has been seen for some time, figures for February showed traditional mixed asset funds being the best selling, with £813m of net retail inflows. The Mixed Investment 40-85% Shares sector was the top-selling peer group with £303m of net retail sales.
These figures are supported by research from Fidelity FundsNetwork, which show the three IA Mixed Investment sectors dominated fund sales in February. Paul Richards, head of sales at FundsNetwork, says: “While February saw various indices hitting record highs, it’s clear that advisory firms and clients have become increasingly wary of the market euphoria.”
Eric Tazé-Bernard, chief allocation adviser at Amundi, says investors may not necessarily find solace in a blanket allocation to multi-asset, and fund selection is critical.
“The issue with multi-asset funds is they tend to have significant equity beta. Selecting the right multi-asset strategy that prevents you from losing money in a downturn is not easy,” he points out.
“A successful strategy is one that can implement genuine diversification across a number of risk premia such as value, illiquidity, duration – going beyond the traditional diversification of bonds and equities.
“Investors are more willing to replace part of their fixed income allocations with multi-asset absolute return strategies that tend to have a similar volatility of 4-5 per cent but generate better returns,” he adds.
Steven Andrew, multi-asset manager at M&G, suggests it is increasingly important to be selective within the equity space. “In terms of regional opportunities in equities, we have seen attractive valuations in Asia during the quarter,” he says.
“We remain very much in favour of equities compared with mainstream bond markets, which continue to offer negative real yields in Europe, UK and Japan. In some areas they have been displaying extreme volatility, given the continued sell-off and political headlines in Europe.
“However, corporate and emerging market bonds still appear better value than core government bonds, even though their valuations are now less compelling compared with last year.”
David Marchant, chief investment officer at Canada Life Investments, adds: “The environment facing investors today can best be described as challenging. While recent equity market performance could suggest all is rosy in the world, there are clearly a number of dark clouds on the horizon, both in the UK and globally.
“In the UK, the outlook for equity markets remains constructive. In particular, the weakness in sterling following the Brexit vote last year continues to boost the competitiveness of the UK’s large exporters, even with the uncertainty surrounding the approaching exit from the EU.
“But the recent uptick in inflation may provide challenges for domestically focused areas of the market, such as retail. Europe’s recovery, in theory, should boost equity markets across the region, but there is plenty of scope for negative surprises, especially in political spheres.”