Aim: Growth above UK inflation by investing in a multi-asset portfolio of equities, bonds, derivatives and alternative investments
Minimum investment: Lump sum £2,000
Investment split: Up to 60% in equities, remainder in bonds, derivatives and alternative investments
Isa link: Yes
Charges: Initial 5%, annual 1.5%
Commission: Subject to negotiation
Tel: 0845 082 2479
Baring Asset Management has brought out a retail multi-asset fund that aims to beat inflation with a lower risk than pure equity funds. The fund will have no benchmark and will invest in equities, bonds, derivatives and alternative asset classes such as commodities, property and private equity.
Looking at the fund’s suitability to the market, Hargreaves Lansdown senior analyst Meera Patel says: “We have seen many assets fall in value over the last 18 months and a multi-asset fund like this could combine and diversify assets in order to deliver long-term returns. The fund can make use of traditional assets like equities, bonds and cash, but can also have exposure to alternatives such as gold and property.”
Patel highlights the fund’s geographical diversity in developed and emerging markets. “If the managers cannot get sufficient exposure to an asset directly, they will use exchange traded funds and other investment funds,” she says.
This is not an out and out stock picking fund in Patel’s view. She says: “Its main focus is on generating a big proportion of the return from asset allocation. We believe asset allocation can form an important driver of overall returns, although we do also appreciate the merits of stock picking. Barings expect to target 75 per cent of the return from asset allocation and 25 per cent from stock selection.”
Patel notes that the fund is not managed by a one man band. “There is an established team and the investment approach has been in existence for nine years. The team launched a similar fund in January 2007, with promising results so far.”
The fund has risk controls to determine the minimum and maximum amounts the fund can invest in the different assets. “For example, it can invest 30 to 100 per cent in bonds at any one time, up to 20 per cent in property and up to 30 per cent in alternatives. It makes a refreshing change that the annual management charge is only the standard average of 1.5 per cent and that there is no performance fee,” says Patel.
Turning to the potential drawbacks of the fund Patel says: “Baring believes that a return of 4 per cent above the Retail Price Index net of fees is achievable over a market cycle. With RPI currently at 0 per cent, this return could be realistic in the current environment. However, if RPI crept up to a significantly higher level, it will be interesting to see if this fund meets its objective. I suspect it could be challenging.”
Another issue for Patel is that over the last year, many assets have fallen in value and the correlation between them has increased. “We could therefore argue that there may not necessarily be true diversification in a multi-asset fund during volatile times. There is a risk that when some of these assets fall in value, they could potentially all fall in tandem although the reverse could also be true. This is a risk which needs to be taken into account. The managers’ skills in getting the asset allocation and timing right is vital.”
Patel also takes issue with Baring’s lack of staff retention. “The company has, in the past, seen many good fund managers jump ship so I need convincing that this team is committed for the long term. An attractive incentivisation package could be one example.”
Identifying potential competitors Patel says: “The fund will be in the IMA Cautious Managed sector and although the funds in the sector are not all like-for-like, there are several multi-asset funds that could provide some competition. Newton phoenix multi-asset, M&G cautious multi-asset and JPM cautious total return are some examples. However, we do need to bear in mind that the underlying objectives and strategies of each fund will differ.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average