Intermediary use of single multi-asset strategies escalates

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Investing in multi asset strategies

The growth of multi-asset investing is not a new story. With assets under management of £115bn across the three main Investment Association sectors, strategies in this area have developed a foothold in everyday fund selection.

The difficulties for advisers and other fund buyers in designing, controlling and maintaining complex portfolios have grown over time. 

This has become more apparent as intermediaries increasingly turn towards ready-made products. How they use such products is one aspect of the industry that is attracting more interest.

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According to insurance company Aegon, there is a notable shift in how advisers and fund buyers have used multi-asset products over the past two years.

It had been widely assumed intermediaries were allocating to a multi-asset product as a core holding within a fund strategy, with satellite vehicles taking more esoteric risks depending on tolerances, or as a more defensive holding aimed at steadying losses during a market downturn. 

However, the survey by Aegon shows that more than a third of intermediaries are now using a single multi-asset fund for the entirety of a client’s investment allocation, hoping the inherent diversification contained within is adequate.

The study reveals that this has partly come at the expense of model portfolio usage, with evidence suggesting others withdrawing from using discretionary fund managers (DFMs) or their own single-fund strategies.

Some 36 per cent of advisers say they now predominantly use a multi-asset fund for client allocations, up from 18 per cent in 2016. 

Correspondingly, model portfolio usage fell to 36 per cent from 41 per cent, and single-strategy funds and DFMs are used only in the minority of cases.

Nick Dixon, investment director at the insurance outfit, notes regulatory and cost pressures could be behind advisers turning towards multi-asset funds.

“While some [advisory firms] with large numbers of high-value clients are looking to gain DFM permissions, others see multi-asset funds as a cost-effective way of addressing mainstream investment needs,” Mr Dixon says.

While model portfolio usage is still popular and likely to remain so, the doubling of advisers solely relying on a single multi-asset fund will cause concern for fund groups without such a proposition.

In the IA Mixed Investment sectors, retail net flows have been steady, even throughout 2016 – a year to forget for asset management sales. 

When combined with the newly launched Volatility Managed sector, the sectors have seen more than £11bn of net sales in the 12 months to the end of June. 

In contrast, equities have seen net redemptions of £2.4bn.

Demand for income could be another factor in the increasing popularity of multi-asset funds, particularly after the 2015 pension freedoms, with 15 vehicles in the Mixed Investment sectors now yielding more than 4 per cent.

This growth could also be linked to a shift in the source of fund flows. In the past 12 months, more than £7bn of net retail sales have come from personal pensions, compared with £2.8bn from Isas. 

Isas were more popular than pensions as recently as 2014.