Multi-asset is one of the new buzz words in the industry. Is it another marketing wheeze or do the funds represent a real solution to replace with-profits funds in client portfolios?
Born out of the Ucits III changes, funds that register as non-Ucits retail schemes can invest in a broader range of assets than has traditionally been the case. Typical examples of the assets these funds can hold include exchange traded funds, gilts and treasuries, hedge funds and property funds. They also have a greater ability to use cash to minimise potential losses in market downturns.
We were keen to add these tools to Jupiter Merlin’s arsenal. We converted our four unit trusts to Nurs in July 2006 but chose not to make immediate use of our new powers. We only started to utilise them to any significant extent last year after taking the view that there was little upside in markets in the short term.
Our first moves were to raise cash across our four portfolios and to add gilts and treasuries in November 2007 – positions that worked well as markets suffered a steep correction in January. We have also made use of a FTSE 100 ETF and a gold ETF. We have not yet used our ability to buy other assets such as hedge funds although we do have significant expertise in this area. However, we believe there is no point in diversification for diversification’s sake. Just because one has the ability to use extended powers to asset allocate across a broader range of assets, it does not mean that it is always best for our investors.
Would it have been in the best interests of our investors to invest in property funds immediately after assuming our new powers? Considering the problems suffered by this sector in the last year, the answer is no, yet much is being made of these funds’ ability to invest in “uncorrelated assets” as if this will result in lower risk and better returns. It is more likely to result in mediocre performance as you diversify performance away.
It concerns me to see multi-asset funds marketed so heavily as perfect for all market conditions. Of course, they could be but only if the manager is willing and able to take asset allocation bets rather than simply tinkering around the edges. Crucially, they must be able to consistently pinpoint the right time to shift the emphasis of their portfolios from one asset class to another. Sadly, only a small minority of managers have proved their ability to make correct asset allocation calls consistently. The danger is that investors sell out of with-profits funds and buy into the multi-asset hype, only to find themselves ending up with a product that does little better in performance terms.
John Chatfeild-Roberts is head of the Jupiter Merlin independent funds team