Just as in comedy, the secret of great investing is… timing. If the investment is performing well, you risk missing out on potential growth by moving too early. Leave it too late, and you could lose the capital you have made to a stock market correction. But one particular class of investment removes the need to make such thorny and stressful judgments: multi-asset funds.
Why multi-asset funds?They provide investors with an all-in-one solution to managing risk by spreading their money over a range of assets. Most multi-asset funds include shares, bonds and cash, while some hold commercial property and commodities and may include a small amount of private equity and even hedge funds. Some access an even bigger spread of assets by investing in other funds.
How many are there?There are now in the region of 475 multi-asset funds available –
as defined by the Investment Association – spread over a variety of sectors.
What’s the downside?Diversification to reduce risk means that returns are unlikely to match those of a single-asset fund when that particular asset class is doing well. On the other hand, if that asset class then nosedives in value, the multi-asset fund will not suffer the same level of losses.
What sort of return can the investor expect?Analysis by FE Trustnet shows that in 2013, funds in the Flexible sector were up by an average of 10.13%, while those in the 0%-35% Share category returned an average of 4.2%. However, in 2011, when equities suffered a downturn, funds in the 0%-35% Share category made a small average return of 1.38%, while those in Flexible Investment fell by an average of 8.73%.
Investors also need to be aware of the total charges they will pay, as these can place a considerable drag on performance. While a multi-asset fund investing directly in the underlying assets can charge as little as 0.5% a year, the charges for one that invests in other funds will range from 1% to 1.6%, depending on whether it buys funds managed by its own investment group or those of other companies.
Why now?Many investment experts expect multi-asset funds to become even more popular following the introduction of pension freedom rules in April 2015. The new rules will allow people greater flexibility in how and when they access their pension funds, and this is expected to lead to more people keeping them invested, rather than using them to buy an annuity.
What do the experts say?“Multi-asset funds are not going to shoot the lights out – in performance terms, they are secure and plodding. But that is exactly what many investors want, especially if they don’t want to be continually monitoring their underlying fund holdings.”
Patrick Connolly, a certified financial planner with independent financial advisers AWD Chase de Vere
“As Government policy and regulation place more of the financial decisions into the hands of consumers – non-expert investors – a multi-asset approach that provides diversification, risk management and access to the right asset classes and right managers at the right times is a good option for these investors.”
James Bateman, Head of Portfolio Management at Fidelity Solutions, which has more than £30bn in a range of multi-asset and multi-manager funds for both retail and institutional clients
The original version of this article was published in the March 2015 print edition of
the Review.