Multi-asset funds fail to deliver in market turmoil

market investment chart

Multi-asset funds have failed to deliver positive returns over the past 12 months in the pre and post-Brexit market volatility, a report has found.

Analytics firm Cerulli Associates found that in the 12 months to end of July 2016 none of the multi-asset sectors it reviewed were in positive territory. The report suggests fund selectors might opt for cheaper and more strategic vehicles, such as smart beta multi-asset funds.

Cerulli Europe managing director Barbara Wall says: “The past 12 months have been tough for multi-asset managers. Overall, the asset class has failed its first real test, and investors are beginning to take note. While a single year is not enough to truly judge performance, it does serve as an indicator.”

The report notes that in the past two years multi-asset fees have already reduced by around 16 basis points on average and analysts expect this figure to lower further both in the UK and Europe.

Architas investment director Adrian Lowcock says despite being a “tougher time” for multi-asset investing given the numerous market uncertainties, it is not fair to judge their performance over such a short-term period.

He says: “Multi-asset funds in the short term are more subject to volatility and correlation within assets so the shorter the time scale the more difficult it is for multi-asset to deliver.

“But in the medium to long-term is when they deliver what they promise. Only in the past month, you’ve seen a lot of correlation between asset classes – gilts, gold and equities – went up all at the same time and that is because of quantitative easing.”

Architas multi-asset range, however, had positive returns for the period with the Multi Asset Passive Reserve fund being the best performer with returns of 9.54 per cent.

Angelos Gousios, an associate director at Cerulli Associates, agrees the prospect for multi-asset funds in the longer term are more promising.

He says: “Tailwinds that will increase their exposure include defined contribution pension schemes in the UK. However, inflows are likely to be more concentrated from now on, with managers that fail to deliver falling by the wayside.”

Hargreaves Lansdown senior analyst Laith Khalaf says as with any sectors there are winners and losers so in a year’s time it doesn’t matter what the performance is.

He also says multi-asset funds have a lot of differences among them, such as their risk appetite, so there is the need to consider different factors when assessing them.

Khalaf recommends three multi-asset funds that delivered positive returns over the past 12 months: the Trojan fund, the Newtown Real Return fund and the Pyrford Global Total Return fund which returned 14 per cent, 7 per cent and 7 per cent respectively.