How has multi-asset performed recently
There is always going to be a lot of dispersion in terms of performance within multi-asset funds as they can often do different things to reach their investment goal. That said, performance across the piece has been strong over the past 12 months, this has been driven by excellent returns from equities (rising over 16%) as well as bonds, which have offered a return on capital and an attractive income.
Alternatives like gold, property and infrastructure also produced positive returns. This is reflected in the average performance of each multi-asset sector in this period. For example, the average fund in the most cautious sector (IA Mixed Investment 0-35% shares sector) is almost 7% in that time; while sectors with a greater focus on equities, such as the IA Flexible Investment and IA Mixed Investment 40-85% Shares have returned in excess of 10%. Income generating multi-asset funds have also had a strong year.
Why invest in multi-asset funds?
Perhaps the biggest benefit of a multi-asset fund is it takes the choice out of an investor’s hands. These portfolios typically differ from traditional funds by targeting a specific outcome, such as a return above inflation. These managers also have the additional flexibility to invest across asset classes, geographies, styles and a number of investment managers. The ultimate goal is to create a flexible range of investment instruments that can seek out growth opportunities as the market environment changes, while carefully managing risk.
Essentially, they take the decision of what and where to invest out of your hands, with managers having the potential to quickly adapt to markets as and when they need to. These funds can take different guises – some invest directly in stocks, while others build portfolios from other funds (this is called a fund-of-funds approach). But the proof of the pudding is in the eating – and the diversification tools and risk management skills of these multi-asset portfolios has proven a big hit with investors over the past couple of decades, with many becoming the bedrock of an investor’s portfolio.
These vehicles do tend to cost a bit more than a typical active fund – but the additional oversight offered by the right manager usually makes it more than worth it.
Three multi-asset choices
Targeting a yield of around 4%, Ninety One Diversified Income fund is an ideal building block for a risk-averse investor looking to move their cash into an investment fund. The fund is designed to either replace or complement bonds in an investor’s portfolio. The fund has produced a positive return in nine of the past 10 years.
Managed by David Coombs, Rathbone Strategic Growth Portfolio targets cash plus 3 per cent per annum over a minimum five-year period and has a big focus on delivering this via a risk-controlled framework. The multi-asset fund focuses not only on returns, but also on risk and correlation of assets. David uses a disciplined asset-allocation framework and a forward-looking assessment of correlation, risk and return, as the cornerstone of the investment process. Asset classes are then divided into three distinct categories: liquidity, equity risk and diversifiers.
Aegon Diversified Monthly Income manager Vincent McEntegart draws upon all of Aegon’s investment capabilities to build this multi-asset portfolio using the most attractive income opportunities the team has identified. The manager decides how much to allocate to equities, fixed income, property, and specialist income sectors (such as infrastructure and renewable energy) to spread the risk and balance the sources of income. The fund targets an attractive yield (around 5% per annum), which is paid monthly.
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