Multi-asset  

The strategy that keeps on giving

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Wide exposure, but low in cost

Regulatory scrutiny of investment vehicles has tightened still further since the turn of the millennium, and has led to a reclassification of mutual funds in the IA’s sector. In 2011, the Investment Management Association (as it was then known), reclassified funds in its Cautious Managed, Balanced Managed and Actively Managed sectors with alphabetical labels – Managed A, Managed B and Managed C.

Since then, the IA has badged these sectors by the percentage of equities that each fund holds:

  • i) Mixed Investment: 0-35 per cent Shares
  • ii) Mixed Investment 20-60 per cent Shares
  • iii) Mixed Investment 40-85 per cent Shares.

Those that do not fit the bill can find a home in the Flexible or Unclassified sectors. These final two sectors may well expand in the coming years, as investor interest in diversification and technological developments trigger the growth of more sophisticated multi-asset products such as risk premia funds, which were previously the preserve of hedge funds.

Dale Erdei, head of intermediary sales at JPMorgan Asset Management, explains that the story of multi-asset funds in recent years has been less about “evolution” and rather one of “proliferation”.

“The spectrum of multi-asset funds is now wide-ranging,” he says. “There are strategies that may only invest in two different types of securities being labelled as multi-asset. We’re also seeing the launch of increasingly complex products, which may use different or multiple types of securities within their portfolio, entering the multi-asset fray.

“The popularity of multi-asset funds doesn’t seem to be waning, with many investors using these solutions to access less traditional parts of the investment universe that may have not been as easy to access in the past.” 

So where next?

The insatiable appetite for multi-asset funds looks set to continue, according to industry figures, who note continued volatility in the bond market as a likely trigger for a rethink of some investor allocations in fixed income.

“Bonds haven’t had the best time of it this year, and they have been a disaster for a lot of investors,” says Charles Hepworth, investment director of the multi asset class solutions team at Swiss fund manager Gam.

The growing bearish sentiment may push investors towards multi-asset style funds, according to Mr Hepworth, who says that Gam’s preference for more exotic fixed income investments, such as mortgage-backed securities and emerging markets debt, in recent years had protected capital.

In an interview, the investment director said that Gam is now looking to add exposure to absolute return strategies over the coming six months and will be evaluating strategies in volatility trading and merger arbitrage, among others.

However, when asked if intermediaries should expect to see a flurry of new launches to accommodate similar thinking in the retail market, he said this was unlikely.