What is behind the popularity of multi-asset portfolios?

This article is part of
How multi-asset wrapped up the funds market

What is behind the popularity of multi-asset portfolios?

Multi-asset funds as a staple of the financial adviser's investment diet have become prevalent over the past decade. 

It is hard to chart the rise exactly, due to some funds changing their names, mandates and even managers thanks to the swings and roundabouts of merger & acquisition activity over the past 10 years.

It is also difficult to pinpoint the exact point at which multi-asset funds proliferated, given the Investment Association (IA) sectors in which these funds tend, for the most part, to sit have also changed in that time. 

The sectors were originally badged as Cautious, Balanced and Adventurous, but are now: 

  • Mixed Investment: 0-35 per cent Shares.
  • Mixed Investment 20-60 per cent Shares.
  • Mixed Investment 40-85 per cent Shares.
  • There is also the Flexible Investment Sector, in which some multi-asset funds sit, and the Unclassified Sector.

However, what is clear is that, in the year 2000, hardly anybody in the fund management industry talked about multi-asset investing; now there seems to be a launch of a multi-asset portfolio every quarter. 

What is also clear is these have been popular with the retail market. Investment Association (IA) figures show that, over the past 10 years, the Mixed Investment 20 per cent to 60 per cent Shares sector, in which many multi-asset funds sit, has been the most popular in terms of net retail sales four times. 

"The investment universe, particularly the fund of funds space, has expanded greatly in recent years," says Frank Potaczek, head of UK proposition for Architas. "Consequently, there is a tremendous range of investment opportunities available, regardless of risk appetite or investment goals.

"But with a growing range comes growing complexity, as providers seek niche areas of the market to set themselves apart from their competitors."

As a result, there has been an explosion of funds designated as multi-asset, although it is not easy to compare like for like. 

For example, Defaqto figures cite 229 open-ended multi-asset funds investing directly in securities, and 310 multi-manager funds, covered by its Diamond Ratings service.

However, Morningstar has confirmed there are currently 1,027 UK domiciled multi-asset funds for sale to UK retail investors, and 688 with five-year returns.

Actually, if you take into consideration those which are not domiciled or managed in the UK, there are an eye-popping 11,266 multi-asset funds registered for sale to retail investors in the UK, whose base currency is sterling; most of these are not within the Investment Association sectors and would be available as part of bespoke private client packages from private banks.

Some 2,484 of these have a five-year track record. This means more than 8,000 multi-asset funds have been launched for the UK market since 2013.

Why so many? And what caused this population boom of multi-asset funds?

Market conditions

According to Mr Potaczek, part of the appeal for multi-asset is that it offers the sort of access to a "vast array" of asset classes, but in a more "dynamically managed way than was previously offered by managed funds".

But why should investors want such an array of asset classes?

The current economic climate might give a hint as to why. Volatility, geopolitical uncertainty, low returns from bonds and cash, a global hunt for income: all this is putting pressure on investors to search further afield for their investment returns.