Multi-asset funds are helping investors deal with uncertainty. Alix Robertson talks to some in the industry about the popularity of these funds and hears investors may be flexible on fees.
For investors, the past few years have been a time of great uncertainty – and with the Charlie Hebdo attacks in Paris, Syriza winning the Greek elections and the European Central Bank introducing quantitative easing, there are few signs that this atmosphere will change any time soon.
In the multi-asset arena, a restless future is anything but bad news. These funds are supposed to be nimble and reactive, and to provide diversification.
As a fund distributor, Roger Bacon, head of managed investments for Asia Pacific at Citibank, explains the appeal of multi-asset investing.
“Most investors are finding it a little bit harder at the moment to do their own risk management and asset allocation. The market environment is very challenging and we expect that will continue in 2015,” he says.
Bacon says the appetite of clients for multi-asset investing is also on the rise, especially in Asia, and it’s a trend he expects will continue.
Fund flows into the asset class have been strong. According to the latest data from fund research company Lipper, mixed-asset products were the bestselling asset class in Europe in October 2014, with inflows of €7.7 billion.
Bacon sees alignment between the interests of investors and fund managers when it comes to multi-asset investing, meaning that investors are more open-minded when comes to fees, especially as fund managers seem confident that they can make money in all environments.
“They do not expect to lose money, and these funds – if they can deliver on that promise of a cash-plus type return – then investors do have a strong view on that and they are perhaps prepared to be a bit more flexible with the fees they pay.”
Valentijn van Nieuwenhuijzen, head of multi-asset strategies at ING Investment Management, says the higher flexibility of multi-asset funds also accounts for their popularity.
Van Nieuwenhuijzen describes multi-asset investing as a “more agnostic but therefore a more robust approach”, which has enabled multi-asset funds to show good performances over the past five years, despite a volatile backdrop in financial markets.
ING IM has been able to offer clients stable returns whilst maintaining a modest risk profile, says co-head of multi-asset strategies, Ewout van Schaick; last year the First Class Multi-Asset fund returned 10.5% with only 3.5% volatility, well below its longer-term target of 5%.
HELPED BY UNCERTAINTY
Colin Graham, chief investment officer and head of tactical asset allocation, multi-asset solutions at BNP Paribas Investment Partners, says factors such as uncertainty in monetary policy, asset bubbles and investor behaviour have all helped investors to realise that multi-asset funds offer a place where they can put their money for the longer term.
“There is unprecedented uncertainty about a lot of the inputs that go in to make up investment returns and therefore delegating the asset allocation to experts is a sensible way of moving. Flows into multi-asset funds have been very high, and we see that continuing into the future,” he says.
He adds that the recent environment of strong regulation has played a part – for example, the Markets in Financial Instruments Directive (MiFID) – causing behaviour in the market to change significantly.
With more investors turning to multi-asset solutions, the landscape is becoming increasingly complex as many providers look to offer more sophisticated types of fund.
Income and risk are two themes that are attracting interest, and have been the focus for firms such as Lyxor Asset Management and Schroders.
Florence Barjou, Lyxor’s head of multi-asset management, says she has received many client questions on the diversification benefits of risk parity multi-asset funds, and describes her own approach as “active risk parity”.
“What we try to do in our funds is generate absolute performance – performance whatever the market environment,” she says. “It’s very good to be diversified, but when market conditions change, sometimes you want to move out of an asset class.”
The Lyxor Absolute Return Multi Assets (ARMA) 8 fund has a target volatility of 8%. It posted a 6% annual performance last year and 10% in 2013. Barjou claims the fund’s returns prove the durability of Lyxor’s model.
“2013 was a year which was not easy, for traditional multi-asset or traditional risk parity funds, and in 2013 we showed that our process was very nimble –especially because we were able to exit fixed income, which was a very negative contributor to performance,” Barjou says.
At Schroders, multi-asset fund manager Remi Ajewole says that while products are becoming more sophisticated, so are investors.
“Investors are questioning why they should own or have exposure to a particular asset class or a particular manager. They are beginning to question what kind of performance they expect for a given level of risk and there’s a lower tolerance for unnecessary risk,” she says.
Ajewole is co-manager for the Schroder Dynamic Multi-Asset fund, which returned 6.4% in 2014 and 10.1% in 2013, and has assets under management of £64.2 million (€85.0 million).
Schroders is focusing on more specialised multi-asset products and launched UK and US versions of its Schroder Global Multi-Asset Income product in December.
Ajewole says that with the importance of the income theme for investors, “the multi-asset way of generating income makes sense”.
David Millar, head of multi-asset at Invesco, also sees value on an income focus.
“The income variance in the UK marketplace was very strongly highlighted by the budget changes on pensions, and so having an income variant is certainly something to look at,” he says.
Millar works on three funds, including the Global Targeted Returns Fund, which returned 7.84 % over the past year. He says the flows into Invesco’s fund are a good indication that the market environment is still very supportive of multi-asset funds. “It should continue to be so in the low-rate environment, especially if equity returns become less certain and more volatile.”
Millar says the multi-asset arena has “come of age” but adds that this now shines a spotlight on the need for a responsible approach from fund managers and advisers.
“There’s a huge burden on us as practitioners to help educate and explain what it is that we do, to our clients or their representatives in terms of the adviser community,” he says.
Millar adds that the increasing variety in the multi-asset field can make choosing a fund challenging.
“The advisory community has to work hard in trying to differentiate them, and that puts the onus on us to make sure that we help in providing them with the tools they need to do that.”
©2015 funds europe