A dog might be a man’s best friend, but multi-asset funds could be an investor’s most reliable pal.
That is because, as Invesco’s David Aujla says, multi-asset funds have produced good returns overall in recent years.
The fund manager for summit growth and summit responsible multi-asset ranges says: “Multi-asset funds have generally performed well and delivered good returns for clients. Both ‘traditional’ components of a typical multi-asset portfolio – equities and fixed income – delivered positive returns over the last 10 years.
“Equities have performed particularly well, and it has therefore been those multi-asset funds with a higher risk profile that have tended to deliver the greatest returns, as one would expect over longer periods.
"For context, the MSCI ACWI index has delivered annualised returns of 12 per cent in the 10 years to 31 August 2024 (in GBP terms).
“Fixed income assets, particularly those with longer-duration profiles, struggled in 2022 as interest rates rose in the fight to combat inflation.
"That meant that many, more defensive, multi-asset funds lagged their more aggressive counterparts. This relative underperformance was exacerbated by some more aggressive multi-asset funds benefiting from a weakening in sterling relative to the US dollar via unhedged US equity exposure.”
He adds that multi-asset funds have retained their popularity, and this has grown recently due to a combination of regulation, an increased desire by financial advisers to spend more time focusing on clients and less on managing investments, and recent reductions in the capital gains tax allowances in the UK.
Aujla adds: “In terms of what investors want from multi-asset funds, I think well-diversified, intelligently constructed portfolios are a must. Only then do portfolios have the potential to navigate changing and often volatile market conditions.
"Alongside that I think investors are focused on cost, and while that doesn’t necessarily mean the cheapest multi-asset funds, it does mean that they want value for money.
"There are ways for multi-asset funds to deliver this at an affordable cost. For example, using active underlying funds in those asset classes or markets where the potential to achieve outperformance is higher, and perhaps using passive underlying funds in more efficient markets.”
However, David Jane, fund manager at Premier Miton’s macro thematic multi-asset funds, says there has been a huge variability in the performance of mixed-asset funds, but in aggregate they have performed well.
He says: “One of the recent defining moments has been how funds negotiated the regime change post-lockdown, when both bonds and equities fell in lockstep as the world moved from a low-inflation regime to a more normal one.
"Within the multi-asset space, index funds have taken a disproportionate amount of the flow. In our view, index funds are pushing the asset allocation decision onto the adviser.
"In general, most buyers want an active, risk-managed portfolio to meet certain clients’ accumulation or decumulation needs.”
