Do multi-asset funds perform in times of stress?

This article is part of
Guide to Multi-Asset Investing

“Multi-asset funds can achieve this,” he says.

“They can provide investors with an all-in-one diversified portfolio, which is managed by an investment expert (or team) who is responsible for monitoring the underlying assets and making changes if they believe this will improve performance or manage risks better.”

Under stress

Multi-asset funds may help to spread risk, but do they outperform UK equity and UK bond funds when the going gets tough?

Ms Bliebenicht explains that the last decade has brought a “distinct advantage” for global investors, with UK equity performance “substantially behind” the global developed market universe.

According to Ms Bliebenicht, the MSCI UK index was up 93.5 per cent, from December 31 2009 to October 29 2019, compared to the MSCI World index’s 208.5 per cent rise over the period.

She adds: “Over the short term, correlations between equities and government bonds may increase in periods of market stress. The ‘taper tantrum’ in the second quarter of 2014 was an example of such a perfect storm, as was the start of 2018.

“Over the medium to long term there is a clear benefit from diversification, especially if we consider a globally diversified portfolio against holding UK assets on their own.”

Mr Connolly says there can still be significant differences between the performance of different multi-asset funds depending on the mix of underlying assets they hold, the investment style, charges and “whether their managers make good or bad decisions”.

He says: “This is evidenced in that the top-performing multi-asset fund has returned 19.6 per cent over the past year, whereas the worst performer has lost 6.4 per cent.”

Type of market stress might also affect whether a multi-asset fund outperforms a UK equity or UK bond fund.

Ben Yearsley, investment consultant at Fairview Investing, says: “It really depends whether it’s a wide economic stress, such as a broad recession, or just a price-related equity market stress situation.

“In a recessionary environment it’s likely that equities, commodities and property will all suffer – even some corporate bonds too, with really only government bonds providing solace.”

He says: “I also think that over the very long term – 10 years plus – that equities will outperform. So multi-asset over the very long term will underperform.

"Therefore you are investing in it for either a shorter timeframe or for risk diversification reasons – both of these are valid reasons.”