Talking Point 

Advisers choose multi-asset for diversification

Advisers choose multi-asset for diversification

Diversification has been cited as the prevailing reason for advisers choosing multi-asset funds for their clients.

Outweighing other considerations such as potentially higher cost or even the rise of risk-rated multi-asset funds, advisers taking part in a poll from FTAdviser Talking Point claimed diversification was the main reason why they were recommending multi-asset funds.

Over April, advisers were asked what were their reasons for choosing multi-asset portfolios; the vast majority said the benefit of having a manager choosing the right funds, stocks and sector allocations across all asset classes was an overwhelming reason for putting clients in such funds.

This coincided with a guide from Defaqto, sponsored by Prudential, which found investors were also drawn to multi-asset funds because of the simplicity of them.

The guide said: "For the investor the benefit of these types of funds is the simplicity of them, as it is possible for a client to invest in the same family of funds throughout their investment lifecycle.

"Younger investors in the accumulation phase would be expected to use the higher risk funds in the family, with their corresponding higher levels of expected return; while older investors approaching retirement or already in the decumulation phase will tend to use the lower risk funds, accepting their probable lower expected returns."

But while FTAdviser TalkingPoint's Twitter poll found cost was not a reason for choosing such funds - perhaps because of concerns these could be more expensive to manage than a single strategy fund - the Defaqto report suggested the popularity of such portfolios could see costs start to come down for multi-asset funds.

Catriona McInally, investment expert at Prudential, commented: "Demand for cost-effective multi-asset funds is high as investors understand more and more that costs will detract from performance.

"These types of funds can fit into an adviser’s proposition and demonstrate how investment strategies can be altered to meet a client’s changing circumstances."

The poll reflected sales data from one of the largest fund platforms, Fidelity FundsNetwork, which revealed huge swathes of money flowing into multi-asset funds earlier this year. 

According to sales data, the Investment Associations's mixed investment 40-85 per cent shares sector led the pack in February in terms of inflows, followed by the mixed investment 20-60 per cent shares and mixed investment 0-35 per cent shares sectors.

At the time, Paul Richards, head of sales for FundsNetwork, commented: “It is clear advisory firms and their clients have become increasingly wary of the market euphoria and how much further the current bull run has left to go.

"With plenty of things having the potential to spook market sentiment in 2017, we perhaps unsurprisingly saw many investors continue to take risk off the table and either diversify their portfolio through multi asset funds or seek the safety of fixed income.