Why multi-asset funds are a one stop shop?

But what does this mean?

One-stop shop 

David Bebb, chartered financial planner at Pannells Financial Planning, says: “Multi-asset funds are considered a 'one-stop shop' for investors and advisers alike because in days gone by, to achieve a specific objective, quite often a portfolio of individual fund holdings would be allocated to attain the desired asset allocation.”

Most in the industry stress that the biggest advantage of multi-asset is its ability to diversify returns. 

Mr Bebb adds: “Multi-asset funds offer diversification for clients who would otherwise struggle to achieve this on their own. It is also potentially a lower cost strategy for investors, depending on selection.”

Alan Chan, director and chartered financial planner at IFS Wealth and Pensions explains that multi-asset funds provide diversification for the investor as the underlying portfolio contains a spread of investments including equities, property, bonds and cash. 

He adds: “In other words, the fund is designed as a single solution for investors.”

Mr Bebb says: "Multi-asset funds offer diversification for clients who would otherwise struggle to achieve this on their own [and is] also potentially a lower cost strategy for investors depending on selection.”

So what diversification benefits do multi-asset funds bring to financial advisers? 

Benefit to advisers 

Some in the industry note that multi-asset funds are useful to advisers in helping target risk profile. 

Gareth Deacon, portfolio manager at Blackfinch Wealth, says: “By utilising a multi-asset fund or portfolio from a single provider, the financial adviser should be confident that the provider is considering many factors in the overall portfolio construction on a daily basis.”

He adds that by selecting a portfolio that has been independently risk-rated, the adviser can also be confident that the portfolio will be managed to that target risk profile. 

This ensures that any tactical positioning undertaken is always done so “while being cognisant of the overall risk profile of the portfolio”. 

Mr Chan says: “You could even use a few multi-asset funds to provide a blended approach, for instance a blend of active and passive investment styles.”

Mr Deacon notes while many multi-asset investments continue to target outperformance of an industry benchmark or peer group, it is possible to find providers that target more specific, client-focused investment outcomes. 

He explains this brings abundant further benefits, including increasing the level of understanding that an end investor has of the expected investment journey that their portfolio may take.

 “It also helps in making clear exactly what the manager is aiming to achieve, allowing performance to be monitored in absolute terms, rather than simply relative,” adds Mr Deacon. 

Danny Knight, investment director a Quilter highlights four main options available to an adviser to provide a professional investment portfolio to clients. 

These include:

• Adviser run model portfolio
• Outsourced model portfolio
• Discretionary manager
• Unitised fund structure, like a multi-asset fund

Volatility

Mr Knight highlights when compared to model portfolios a multi-asset fund can be more active as it can have futures or trackers implemented in real time to react to market conditions or political changes.

He notes that funds have been able to make quick changes and hedge their currency exposure in the current market volatility produced by Brexit.

Mr Knight adds: “This isn’t possible through other structures as listed above [as] a model portfolio requires an adviser to seek client permissions if they didn’t already have client authorization, while an outsourced model portfolio operates on a quarterly rebalance.”

Mr Deacon says:  “By understanding the correlations between asset classes as markets move through economic cycles, multi-asset managers can manage volatility and reposition a portfolio as conditions dictate.”

He adds: “Enabling a provider to utilise its risk budget across asset classes allows for much more dynamic portfolio management, with the ability to both produce positive returns and protect capital on the downside.”

Cheap money 

Didier-Saint Georges, managing director at Carmignac, points out multi-asset investing was a way to have maximum freedom to pick the asset classes with the highest Beta with all financial assets correlated by their common dependence to low interest rates.

But he believes, going forward, multi-asset funds will need to change their investment styles as correlations between asset classes decrease. 

He says: “Managers will need to use their flexibility to optimise the risk-return measure of their fund [which] will require a different investment approach and a much stronger focus on risk management than needed in the last 10 years.”

Mr Georges adds: “In the past ten years, aggressive multi-strategy funds could deliver strong performance while being suitable for retail investors, because central banks were basically underwriting the market risks [and] many retail investors felt able to take in their stride the 'black box' nature of some of these complex funds as long as the performance justified it.”

He warns that such “levels of complacency” now exposes them to a much more challenging environment. 

“Savers will demand genuine transparency from their fund manager, so as to distinguish highly speculative funds from diversified risk-conscious multi-strategy funds,” adds Mr Georges. 

saloni.sardana@ft.com