Ben Yearsley: Why have multi-asset funds taken so long to grow?

Ben Yearsley 160 byline

Multi-asset investing has been the best thing since sliced bread in the investing world since, well, sliced bread was invented. The problem is, no one has actually told potential investors this fact, and so the amounts invested in these funds by private clients is surprisingly low.

Multi-asset funds have in the main been slow to catch clients’ imaginations, with the odd exception such as the Artemis Strategic Assets fund, managed by William Littlewood. However, this fund has been promoted largely on the back of the highly talented Littlewood, and not on the back of the multi-asset approach – I imagine very few investors in this fund realise they own a multi-asset fund.

The premise behind multi-asset funds is simple – the manager has the flexibility to invest proportionately in those asset classes thought most appropriate at that point in time.

In theory, investing in a multi-asset fund with a manager who can actually time markets would mean no other fund was needed. Moving in and out of equities, property, bonds and cash at the correct time in the cycle will make a happy investment bunny.

The clue is whether managers can time markets and asset classes. I would hazard a guess that most think they can time markets, but probably cannot.

One of the reasons why multi-asset funds have been slow to take off is because there is no specific sector for these funds. Multi-asset funds can be found primarily in the Flexible and Mixed sectors, making it more difficult to find and compare them.

I am not sure whether those investment groups with offerings in this area are lobbying for a specific sector, but it would amaze me if they were not.

It is, however, a chicken and egg situation as there will not be a new sector until there are sufficient funds and assets, but while it is difficult to find the funds, significant assets will not flow into them.

An obvious question to ask would be why is multi-asset investing so popular in the world of corporate pensions and not in the private client world? The simple answer to this is surely risk.

Corporate advisers seemingly obsess about risk and having exposure to all asset classes, regardless of whether it is the right or wrong time.

Private clients are less obsessed with risk and more interested in return. By their nature, over the short term multi-asset funds rarely feature at the top of the performance tables.

However, over the longer term, if markets and asset classes are timed correctly – at least some of the time – then these funds should naturally gravitate towards the top.

So, should investors consider investing in the sector? The simple answer is ‘yes’ for those wishing to take a more hands-off investment approach.

In other words, if you want to invest in just a handful of funds, but you want a diversified approach with exposure to most main asset classes, then multi-asset funds could be the answer.

Funds to consider include Baring Multi Asset fund, managed by Andrew Cole, the Rathbone Multi Asset Strategic Growth fund run by David Coombs, and the Artemis Strategic Assets fund.

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Ben Yearsley is the head of investment research at Charles Stanley Direct