He adds: “A multi-asset fund can offer access to asset classes otherwise unobtainable, so the fund manager also has day-to-day control of the fund, and can act quickly should a tactical move needed to be made.”
Thierry Michel, multi-asset portfolio manager at TOBAM agrees that multiple asset classes combined in a risk-based portfolio protect against uncertainty.
“By renouncing to views, macro or otherwise, and focusing on risk and correlation, the resulting portfolio is by nature less sensitive to unexpected moves.”
Mr Michel adds: “This requires a robust estimation of the dependencies between assets, and naturally optimisation of the portfolio.”
But what role do alternative assets have to play in multi-asset funds?
Alternative assets
Mr Chan says multi-asset funds guard against illiquidity by providing a spread of investments and avoiding large exposure to illiquid assets such as property or unquoted stocks.
But Nathan Harris, chartered financial planner at Lothbury Group says alternative assets have a pivotal role to play in multi-asset funds as they tend to be less correlated to each other.
“So by having more uncorrelated assets you are able to be on the efficient frontier and offer better returns to investors,” he says.
The efficient frontier is a curve showing the optimal portfolios that offer the highest expected return for a defined level of risk or the least risk for an expected level of return.
Portfolios that fall below the efficient frontier tend to be less optimal while portfolios that fall to the right of the efficient frontier are also sub-optimal as they pose greater risk for the same expected level of return.
He says investors are typically adding property, insurance and infrastructure funds to portfolios.
Mr Harris says his advice company had spoken to The Foresight Real Global infrastructure fund to assess how a government led by Labour party leader Jeremy Corbyn pan out, should there be a general election in the next few months.
The Labour opposition has pledged to nationalise key infrastructure areas, such as energy, water and railworks which could reduce the rate of return from stocks in that sector.
“We are quite likely to see large losses for those who have invested in infrastructure, but I suspect that would spread to all shares under a Corbyn government.”
saloni.sardana@ft.com
