Multi-Asset Focus  

Using multi-asset as a strategy within pension planning

Using multi-asset as a strategy within pension planning

With its promise of steady growth, diversification and tightly controlled risk, it is easy to see how multi-asset has gained traction within pension planning over recent years.

In addition, there is a clear connection between the clear objectives set out for different parts of the pension journey and the outcome-orientated nature of multi-asset solutions, creating a natural pathway for advisers and their clients towards these products.

Indeed, a key benefit is the capacity the multi-asset manager has to blend a wide range of options in a flexible way to help the client achieve their goals over the investment lifecycle. 

“With pension planning there are more defined objectives and the client needs the certainty of the outcomes to be higher. That has to be taken into consideration when approaching multi-asset solutions,” states Andrew Harman, senior portfolio manager, multi-asset solutions at First State Investments.

“Earlier in the investment, the client can take on more risk and as they get closer to the end goal, capital preservation becomes more important. 

“As there is a range of options available, the manager can make the best choice over the investment cycle. For example, at the moment, sovereign bonds are not delivering as well as they have in the past.

"However, within multi-asset, other assets can be used to fulfil that part of the portfolio. For instance, investment grade credit or emerging market government bonds. There is a great deal of choice and flexibility.”

For Claire Felgate, head of DC at BlackRock, it is easy to see how multi-asset lends itself well to pension planning, where downside risk is pivotal and outcomes need to be closely bound with the clients’ requirements. 

“If we consider how multi-asset is different from other options, the funds and strategies are outcome-orientated, which is important for pension planning,” she says.

“In those first conversations we have with clients we try to determine what their aims are and then look at how best to invest to achieve those goals and it is clear to see that considering multi-asset solutions can make sense when looking specifically at reaching certain outcomes.” 

In a white paper authored by DC strategist Elena Zhmurova, Invesco considered how multi-asset – specifically diversified growth funds (DGFs) – was appealing within DC portfolios because of the potential combination of growth, diversification and reduced volatility within a single product.

It warns, however, that not all products are equal and it is down to the individual to consider whether the end product is in line with the individual client’s needs. 

Ms Zhmurova says: “Despite targeting similar objectives of delivering equity-like returns but with lower volatility than global equity markets over time, DGFs can differ significantly in terms of investment philosophy, asset allocation, range of asset classes deployed and the portfolio manager‘s area of expertise. Therefore, outcomes for members can vary.