The industry is finding multi-asset funds difficult to compare despite efforts by the Investment Association to classify different multi-asset funds, warned market participants.
The IA has over 30 sectors intended to help anyone navigate around 3,000 funds in the UK, and also some offshore EU.
It classifies multi-asset funds in two main categories: mixed investments or flexible investments sector in which some multi-asset funds sit.
Flexible investments can invest up to 100 per cent in shares, bonds or in cash.
Mixed Investments can include both shares and bonds.
The Mixed Investment: 0-35 per cent Shares can invest in both bonds and shares, but the allocation to shares must be between 0 and 35 per cent.
The same applies for the Mixed Investment 20-60% Shares and the Mixed Investment 40-85% Shares fund.
Bit Udit Garg, head of wealth management at Sun Global Investments casts doubt on the transparency of multi-asset funds. “Multi-asset funds are ambiguous and need to be reclassified.”
He said he experienced a similar problem while investing in Indian “hybrid funds” which is comparable to the problems he faces with UK multi-asset funds.
He explained that hybrid funds in India typically have an allocation to both debt and equities.
“I would invest in a hybrid fund thinking it is [made up of] debt and equity but it may only be an equity fund”.
He called for the IA to reclassify multi-asset funds to reflect any shifts in the asset allocation, as some of them typically reduce their exposure to equities in times of turmoil.
Sam Slator, head of communications at Chelsea Financial Services, shared a similar view.
She said: “For example looking at the 20-60 per cent shares sector, there are always funds that have maximum of equities and some that have [less of an allocation to equities].”
She added that investors can only gauge the actual composition of a multi-asset fund once they look at key investor documents.
But Ricky Chan, director and chartered financial planner at IFS Wealth and Pensions took a more neutral view.
He said tools like FE Analytics makes it easier to understand the composition of multi-asset funds.
But Mr Chan added: “When you compare you are not comparing apples for apples. Some can be low risk, some can be high risk, so quite often you are not comparing like for like.”
Responding to the concerns, a spokesperson for the Investment Association said: “We are continually monitoring the fund market to ensure that all of the IA sectors reflect the wide range of products the asset management industry has to offer savers around the world.
The spokesperson added: “The primary purpose of the IA sectors is to serve the needs of consumers and their advisers, and any change to how they are classified must be done in their best interests.”
saloni.sardana@ft.com
