Multi Asset June 2017  

How to construct a multi-asset portfolio for retirement

This article is part of
How to use multi-asset funds for retirement

How to construct a multi-asset portfolio for retirement

Portfolio construction of a multi-asset fund that is being used for retirement depends on where the investor is in the cycle, not on what markets themselves are doing, and aiming to provide consistency for the client.

This is the view of Aviva Investors. A commentary from the company reads: “Rather than narrowly focus on volatility, we believe at the heart of any successful multi-asset solution is a robust portfolio construction process.”

For the Aviva multi-asset fund range, the team focuses on three key elements: strategic asset allocation, tactical asset allocation and implementation, taking each asset’s contribution to risk into account, and stress-testing the portfolios to ensure they deliver consistent client outcomes.

Nick French, head of UK wealth management and managing director for Russell Investments, agrees that a portfolio construction should “help clients stay invested”.

He advocates a multi-portfolio approach, one which can cater to various aspects of a client’s investment strategy, as outlined in another article within this guide. 

Traditionally, as Aviva Investors’ house view explains, multi-asset funds adopted a binary (sometimes tertiary) approach:

  • Equities – the riskiest asset class, with greatest growth potential.
  • Fixed income (with cash) – typically used to lower the overall risk.
  • Alternatives – something that will move independently of either equities or bonds.

However, the team comments this approach is no longer as effective as it used to be, as some fixed income assets, for example, could be riskier than equities.

Instead, the team categorises investments into three categories: growth assets, defensive assets and uncorrelated assets, and each fund within the multi-asset range has an allocation to these three categories.

This offers flexibility for the adviser and for the client, with the necessary diversification. But is this adequate for retirement planning?

Dan Kemp, chief investment officer for Morningstar Investment Management, says: “A portfolio must have a clearly defined objective and should not be dominated by one performance driver."


David Absolon, investment director at Heartwood Investment Management, believes flexibility is key when it comes to structuring a multi-asset portfolio for retirement.

He says: “For us it is about flexibility in terms of the structure. We have a number of core strategies here which our clients can access via a segregated portfolio or a multi-asset fund, which is essentially just a fund wrapper around the strategy.

“What’s more important is then how you build the multi-asset class portfolio. A lot of people do it differently, there’s no one right answer.”

The important thing is not to pigeonhole all clients into one particular form of multi-asset fund, or to follow just an active versus passive portfolio style for all clients, or a fund of funds.

He explains: “It’s about having this flexibility, rather than pigeonholing yourselves into a portfolio that has to be active, or has to all be collective investments.

“Flexibility is the key.”

Stable environments and no promises