Multi Asset June 2017  

How to construct a multi-asset portfolio for retirement

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How to use multi-asset funds for retirement

On a cautionary note, Mr Kemp warns against too much turnover of managers when it comes to selecting a multi-asset portfolio for a client.

He says: “Investors want to avoid multi-asset solutions with high turnover. The people, process and parent are very important, as key person risk or a weak parent company could derail an investor’s financial plan. These are much more important than past performance.”

Mr Kemp also believes advisers should be wary of multi-asset funds structured in a way that they offer fixed yield or return targets. 

He explains: “Solutions that promise 7 per cent fixed returns, using covered calls or something similar, or a 4 per cent fixed yield, should be viewed with caution as they may increase the risk of a permanent loss of capital.”

Accumulation vs decumulation

Multi-asset funds can be useful and flexible tools for retirement planning, but they need to work for the investor both in the accumulation and the decumulation stages. 

This is why a focus on the end goal – the client’s desired investment outcome – is vital.

Mr Absolon says: “Returns based outcome investing, as we call it, is the reason why we have four core investment strategies. Each global multi-asset class portfolios but each trying to beat CPI by a different margin over a cycle, and therefore this can capture, we think, the majority of clients who come through our door at certain points in their life.

“And they are fluid and flexible so what’s right for the client in terms of their capital at one point in the cycle for them, may not be in another, so they can move fluidly through what we offer.”

A particular consideration in the accumulation stage, which Mr Absolon said was important for advisers whose clients have garnered high levels of pension saving, is how close to the lifetime allowance (currently at £1m after falling from a £1.8m high in 2010) they are.

He adds: “This is highly relevant for them in terms of what type of return they’re looking for, given the tax efficiency or inefficiency if they’re very close to their Lifetime Allowance. We can tailor that for them as well.”

Smoothing

Smoothing – a term synonymous with old with-profits funds – has its detractors, but the concept of creating multi-asset fund ranges, where the client’s portfolio is managed to ride out the peaks and troughs more carefully and transitioned into arguably less volatile asset classes, such as inflation-linked bonds and gilts, can be attractive as a proposition.

Adrian Gaspar, multi-asset investment specialist at Prudential Portfolio Management Group, comments: “The idea of ‘smoothing’ returns may seem outdated to some.

"However, if clients set realistic goals and are prepared to accept they may lose out on some performance in rising markets in exchange for the potential to limit losses in a downturn, there is a good chance of their long-term aspirations being met.”