Investors desire to spread investment risk, coupled with a low interest rate environment in which it is difficult to get reasonable returns on cash, are two of the main reasons behind the increased popularity of 'multi-asset' funds.
The term 'multi-asset' refers to funds which invest across several asset classes and fund managers, which means investors are not exposed to the market gains or losses of just one asset class (or fund manager). Ultimately, multi-asset managers create the potential for capital growth and the conditions where the better performers may offset the poor performers.
The rationale is straightforward. No single asset class can be guaranteed to top the performance charts each year, so it seems prudent to have exposure to a broad mix of investments, including property, private equity, commodities and hedge funds. Relatively new as a concept, this new breed of multi-asset fund (brought about as a result of 'UCITS III' legislation) is a natural extension of the more traditional 'balanced' fund, which is restricted to invest in just two asset classes - equities and bonds.
Balanced funds grew in popularity in the wake of the stock market slump, triggered by the bursting of the dotcom bubble in the late 1990's. It is no coincidence then that multi-asset funds are proving so popular amidst the current market uncertainty. It is following such times that investors have become increasingly attracted to funds that can effectively act as a one-stop-shop for all of their investment needs.
Such funds are often referred to as 'core funds', the idea being that, given their diverse yet balanced remit, they account for the majority of the investment at the core of a portfolio, with other smaller, themed funds (known as 'satellite' funds) serving as an exposure to riskier assets. The notion is that a 'core' fund acts as a constant, stable base, whilst the 'satellite' funds are regularly re-assessed and changed in accordance with market trends. The 'core/satellite' approach is one that lends itself to medium to long term savings, such as pension provision or holdings in life assurance contracts.
There are obviously no guarantees, although basic theory around diversification suggests that investors can maximise their chances of making good returns over the long term by building a balanced portfolio that invests not just in a range of different equities, but in a variety of assets too. So, if one investment takes a dip - as invariably happens over the medium to long term- the whole portfolio doesn't get wiped out.
Steve Brann, manager of the Hansard Forsyth Wealthbuilder Balanced fund (X806 (EUR), B11(GBP) and C551 (USD)), available in HIL and HEL, commented on the outlook for his multi-asset fund in 2010 "Regardless of the prevailing shape of the current recovery, the unique nature of this crisis means volatility is likely to remain high whatever the trend direction.
If 2008 was the year of near apocalyptical collapse and 2009 the year of the rally on a rising tide of recovering confidence, then 2010 is likely to be a year of divergence and volatility. The rally in risk assets has been driven by an abundance of virtually-free central bank credit and unprecedented peacetime spending spree by governments.
The outlook for 2010 will vary depending on which country you are looking at. This year will be all about managing the exit of Quantitative Easing and will be the year for true asset allocators and multi-asset investors to come to the fore."
