Multi-asset funds have seen net inflows in the year-to-date with investors keen to outsource asset allocation decisions, however there could be clouds on the horizon for the vehicles, experts have warned.
Some £3.7bn was invested into multi-asset funds between January and September this year, according to data from Morningstar.
Some fund managers have seen more interest in the funds as confusion over asset allocation increases.
The future of the 60/40 model, where 60 per cent of a portfolio is invested in equities and the remaining 40 per cent in bonds, has come under renewed scrutiny in the past year.
In “normal” market conditions, stocks and bonds should act to hedge one-another, as when the stock market experiences a rout, money will move into bond markets and increase prices causing yields to drop, and vice versa.
However, since the start of the year both bonds and stocks have seen bruising performances, with fears of an incoming recession hitting stock markets, while bond markets are digesting unprecedented rises in interest rates.
Georgina Taylor, head of multi-asset at Invesco, said this pressure will have tempted investors to move from managing their own portfolios, and into multi-asset funds.
“Things are quite complicated out there at the moment, so outsourcing that [asset allocation] decision feels a good thing to do [for investors].”
Indeed, the flexible investment sector was the most purchased investment company sector on adviser platforms in the third quarter of the year.
Data released by ISS Financial Clarity and the Association of Investment Companies showed flexible investment trusts accounted for 18 per cent of purchases between July and September.
Platform purchases for the third quarter, totalling £334mn, were 7 per cent lower than the previous quarter.
Most popular investment company sector on adviser platforms
Rank in Q3
% of purchases
% of purchases (Q2 2022)
UK Smaller Companies
Property – UK Commercial
The data shows that in times of trouble, financial advisers and wealth managers are turning to “flexible friends”, said Nick Britton, head of intermediary communications at the AIC.
“This has driven relatively resilient demand for investment companies in the third quarter of the year, in contrast to the broader decline in platform purchases overall.”
However, the sector is difficult to analyse mainly due to its breadth which covers a range of risk offerings, as well as pension funds investing across the sector and making up a large proportion of total investment.
For the purpose of analysis, it is difficult to “slice and dice” the sector, said Ben Seager-Scott, head of multi-asset funds at Evelyn Partners.
“There are different flavours of multi-asset, and [understanding the sentiment] depends on the specific funds.”
The case against multi-asset funds
Market headwinds will be causing certain behaviour among retail investors, said Seager-Scott.
“Market sentiment is broadly negative, and when it is, a lot of investors get spooked and, perhaps for the wrong reasons they try to time the market," he said.
“Investors who have been invested in a balanced or high risk fund may well take their money out."
Another theme impacting the sector over the long term is the move away from multi-asset funds into managed portfolio services.