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What developments might be in store for multi-asset?

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How multi-asset wrapped up the funds market

What developments might be in store for multi-asset?

Multi-asset funds have proliferated across the UK in response to many legislative and economic events but what sort of developments might we see in this field?

Brexit, the US economy, a continued slowdown in China and geopolitical uncertainty all still remain high on the agenda for policy makers and financiers alike over the next few years.

For this reason, contributors to this guide believe multi-asset will still continue to play an important role in providing a risk-managed, diversified means of investing clients' money.

Jonathan Webster-Smith, head of the multi-asset team at Brooks Macdonald, is of this view. 

"Sovereign yields have begun to rise as central banks have started to remove some of the extremely supportive stimulus measures they have had in place since the global financial crisis more than a decade ago.

"However, a number of structural headwinds are holding back inflation and limiting potential growth, particularly in the developed world. 

"As such, we expect the low-return world to persist, which should continue to support multi-asset funds' popularity."

But will the changing market environment - including the rise of crypto currency and financial technology innovation, for example - have any effect on how multi-asset funds are created and managed in the future?

Diversification

According to Frank Potaczek, head of UK proposition for Architas, there will need to be more discussion about how to diversify funds.

He explains: "Traditionally when talking about asset classes, you think equities and bonds, then geographic split, followed by large and small cap.

"In an increasingly connected world, where different geographic markets may also react in a similar fashion, we need to continue to identify further opportunities for diversification."

He says there are various factors the Architas team examines when it comes to identifying and selecting funds, from dividend levels to volatility. These factors can then be used to help diversify the level of risk within portfolios.

This is also a key point for Chris Leyland, deputy chief investment officer for national wealth advisory firm True Potential, who says: "The key development is diversification.

"Having the ability to offer diversification outside of equities and bonds is more and more important as we move through changing market conditions."

Using alternatives may become more popular as a means of additional diversification, Camilla Ritchie, senior investment manager for Seven Investment Management, opines.

She comments: "With bond yields representing poor value, we have been increasingly looking to alternatives as a source for stable returns.

"Combining these provides an array of assets that can deliver characteristics similar to those we traditionally seek from fixed income."

Ms Ritchie adds the issue of low bond yields is a "conundrum" for all asset managers, so she expects the use of alternatives to become a "more pronounced theme" over the next few years.