Three years on from the advent of the pension freedoms, and the reforms have transformed almost every area in which an intermediary can specialise – chief among them the question of how clients will manage their money in retirement.
From a product perspective, the chief beneficiary has been multi-asset funds, a sector that has long been used to sky-high popularity.
Demand for single-asset products, such as equity and bond funds, has waxed and waned at various points in the past decade, despite the strong returns from both in an era of loose monetary policy. But the appetite for multi-asset has never really shown any signs of wavering: mixed-asset products have registered net inflows every year from 2008 to the end of 2017, according to Investment Association (IA) data.
Fund firms have been prolific in responding to this fresh source of demand, with 152 funds launching within the relevant IA and Association of Investment Companies (AIC) mixed-asset sectors since May 2014.
But which have been the best performers among this group? And do such launches adequately cater to the needs of the pension freedoms market?
A clear selling point for multi-asset is the promise of diversification, and the protection it can offer investors. This, and the possibility of generating income, make the funds an appealing area for those who can more easily access retirement savings under the reforms first announced by then-chancellor George Osborne in April 2014.
Rob Kelly, senior consultant within the Emea insights team at Broadridge Financial Solutions, which carries out research on the space, says: “Multi-asset income has grown from about £12.5bn at the start of 2014 to £22bn at the end of 2017. The funds with most flows are the ones launched since the announcement of the pension freedoms. Overwhelmingly, the flows have favoured those that launched after this date, and which we theorise might be targeting the retirement income market.”
“With pension freedoms coming [into effect], multi-asset on a broad level is naturally suited for retirees. We have people with medium to small pots, and multi-asset is a relatively cheap way to diversify, while allowing them to take an income.”
Chris Chancellor, partner at consultancy Mackay Williams, says this rise in popularity may have come at the expense of an old favourite: “In the multi-asset space, the focus for a lot of groups has been income. This fits with the pension freedoms, but also ageing demographics. An interesting comparison is with UK equity income, which has seen outflows for a number of years when many thought it would gather assets.
“A lot of these potential sales instead went to mixed assets, with their ‘all-weather’ message and lower risk. I think investors generally have still not forgotten the financial crisis and the risk of equities.”
Sales figures appear to back this up: Chart 1 shows the two least popular sectors over the past 12 months have been Mixed Investment 0-35% Shares, which has the lowest maximum equity exposure, and Flexible Investment, where no minimum or maximum requirements apply. As such, it appears that risk profiles, alongside other needs, are helping drive individuals into moderately cautious and medium-risk funds. This suggests investors want better returns and income than are on offer from bonds, but feel squeamish about equity-like volatility.