The strategy that keeps on giving

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Wide exposure, but low in cost

The strategy that keeps on giving

Ten years on from the global financial crisis and sales of multi-asset funds have soared in the UK retail market.

At the end of 2008, there was £56.3bn invested in “mixed asset” funds, according to data from the Investment Association, and this figure rocketed in the years that followed, reaching a whopping £221.8bn by the end of 2017.

An upwards correlation of new sales in 2015, 2016 and 2017 suggests this figure will grow still further. Retail sales of mixed asset funds were the second highest asset class in 2017, behind fixed income, accounting for £13.4bn of new sales, according to the IA.

An academic study published in The Journal of Portfolio Management at the beginning of 2018 concluded that the sustained appeal of these funds was the “potential for improved diversity, greater liquidity and reduced volatility”. The study also found that investors were drawn to these funds’ ability to fit with “a variety of investment approaches and asset class categories”.

However, while the IA’s sales figures underscore the appeal, some intermediaries are cautious as to the suitability of multi-asset funds to the mass market.

Patrick Connolly, a certified financial planner and representative for Chase de Vere, acknowledges these funds have increased in popularity as a result of clients’ growing awareness of the need for diversification, but warns that they inevitably will not suit everyone.

“What multi-asset funds do, is provide an all-in-one solution,” he says. “They are ideal for people with relatively small investments, as it can be far more of a challenge to diversify by investing in individual funds. 

“It is also ideal for those that want a buy-and-hold solution, who are not going to have to review their portfolios on an ongoing basis, or those who aren’t looking for ongoing advice. So, yes, there is definitely a niche that they fit.”

Mr Connolly explains that Chase de Vere clients were typically not offered multi-asset solutions “very often” because they generally have larger sums to invest and, therefore, require investment advice on an ongoing basis.

“Our clients tend to retain us, and have more money, so we run bespoke portfolios for them instead,” he says.

Tracking the evolution

While multi-asset investment funds have seen their popularity soar in the retail space over the past decade, the reasoning for their existence is grounded in research that is far older.

In 1952, the Journal of Finance published a paper on portfolio selection by economic theorist and Nobel Prize winner Harry Markowitz, which considered a mathematical link between portfolio diversification and risk reduction.

In the decades that followed, investment houses steadily built a suite of products to serve investors’ growing appetites to diversify. Initially, the appeal of a multi-asset approach was seen in the growth of with-profits funds in the 1980s and 1990s.

However, a series of scandals – including the much-publicised Equitable Life fiasco – led to a decline in their popularity and new regulatory guidance to govern the sale of these products.