How do multi-asset fees stack up?

This article is part of
Guide to Multi-Asset Investing

How do multi-asset fees stack up?

If something is greater than the sum of its parts, multi-asset should be well worth a premium.

Gathering ideas and opportunities from an often unconstrained range of sectors and regions should mean these funds can find the best returns.

However, despite their potential, fees are a key issue holding them back from being the best-selling funds for advisers and their clients in the UK.

Single strategy equities and bond funds regularly outsell multi-asset, according to industry figures.  

This problem is ongoing. When the Financial Conduct Authority looked into transparency around fees in 2016, multi-asset was at the top of its list.

Multi-asset's time to shine?

But with no set strategy, it can be hard to benchmark against peers; equally, using so many moving parts makes it hard to see clearly what is going on – and what you are paying for.

However, with a record equity bull run potentially on borrowed time and a huge swathe of high-quality fixed income in negative yield territory, it could be multi-asset’s time to shine.

So what is an adviser to do about fees? The key is to thoroughly understand the multitude of multi-asset options and where savings can be made.

Chris Salih, research analyst at FundCalibre, says fees tended to be higher when funds are multi-manager multi-asset funds – in other words, the manager invests in other people's funds.

“The fees are higher because you are effectively paying for two levels of management: the underlying fund management and then someone pooling those funds together for you, hopefully in an optimal mix,” says Mr Salih.

Multi-asset funds that invest directly in different securities tend to be a bit cheaper as there is no 'double layer', but you are relying on one manager’s good ideas rather than a group of them.

“That said, if they are a little more expensive than a pure equity fund, for example, it is not unreasonable,” Mr Salih says.

“Think about it this way: you need fewer resources and arguably a smaller skill set to invest in just UK equities than you do to invest in equities from all over the world, fixed income, property, commodities and other alternatives.”

Getting it right

This last point is an important factor to consider when researching multi-asset, as getting it right takes time and can cost money – but it is a vital step in the process.

Meike Bliebenicht, senior product specialist in multi-asset at HSBC Global Asset Management, said this decision-making process is the primary driver of every multi-asset portfolio’s risk-return profile.

“The manager should have the opportunity to adjust the asset allocation if needed,” says Ms Bliebenicht. “So, in our view there should be no shortcuts to the portfolio construction – asset allocation should be active.”

But if there are no shortcuts to asset allocation, there are savings to be made elsewhere while retaining exposure to myriad opportunities.