Popular multi-asset funds
According to the Investment Association, during the first six months of 2018 there have been net retail inflows of £4.9bn into mixed asset funds.
Mr Penny of Tam Asset Management says: “Multi-asset active funds, like Jupiter Merlin, have always grabbed headlines for retail investors, but there are many multi-asset funds with a very colourful array of investment strategies to choose from.”
Peter Westaway, head of the investment strategy group, Europe, for Vanguard Asset Management, says its LifeStrategy multi-asset funds, which are based on a passive investment strategy, have been most popular with its clients.
The LifeStrategy has five risk-adjusted passive funds: 100 per cent, 80 per cent, 60 per cent, 40 per cent and 20 per cent equities.
“Each fund has between 6,000 and 20,000 underlying holdings, helping to reduce risk. We then regularly rebalance the portfolio to the target asset allocation,” explains Mr Westaway.
Mr Khalaf says the actively managed Newton Real Return, Schroder Managed Balanced and Pyrford Global Total Return multi-asset funds are most popular with Hargreaves Lansdown’s clients.
Suitability
What should advisers and their clients avoid when investing in multi-asset portfolios?
Mr Westaway says: “The higher the cost barrier, the greater the challenge in delivering positive net returns. Investors should be mindful of this when selecting multi-asset funds, or indeed any funds.”
“Funds with a short-term track record [are funds to avoid], which is quite a few for the moment, given the popularity of the strategy is relatively new,” says Mr Khalaf.
Mr Penny points out the most popular funds may not be the best ones.
“Just because one multi-asset specialist runs a large client book, it doesn’t make them the default best or safest choice for new investors,” says Mr Penny.
If a strategy cannot be explained to a client, Mr Penny says he won't rely on it to make money.
He continues: “Generally speaking, any multi-asset funds with an investment strategy where it’s hard to ascertain exactly how they generate their returns is a red flag to us. Usually this red flag goes hand-in-hand with another, which is high fees.
“Despite fees coming under pressure, there are some managers who still charge outside of the industry average for these complex strategies.”
Further to fall?
While active funds have the potential to deliver higher returns to clients, many in the industry believe passive multi-asset fund charges are likely to fall further.
Mr Westaway says: “In theory, the costs of the multi-asset funds will increase in January as the underlying funds held within the portfolios report additional costs such as transactions.”
