The firm believes that focusing on externally managed funds will reduce conflicts of interest that could otherwise arise when constructing the total return and strategic growth portfolios.
The total return portfolio is designed for risk-averse investors and aims to outperform the six-month Libor by 2 per cent, with less volatility than equities. The strategic growth portfolio aims to outperform the UK Consumer Price Index inflation rate by 5 per cent, again with less volatility than equities but with higher volatility than the total return portfolio.
The funds will be unconstrained by index benchmarks but will not be invested in every asset class at all times. Asset allocation is driven by risk and correlation rather than geography and the best funds within each category will be selected.
Fund manager David Coombs will take a top-down approach to decide how much risk is appropriate for each portfolio. Coombs joined RUTM in 2007 after almost 20 years at Barings. He established its absolute return investment process and managed Barings multi-asset funds.
In the new fund, assets are grouped according to three categories – liquidity, beta and alternatives. Liquidity refers to assets that do not contain much credit risk, are not highly volatile and can be easily disposed of to meet redemptions – for example, government bonds. Beta assets are highly correlated to the economic cycle, such as equities and corporate bonds.
Alternative assets are in theory uncorrelated to the economic cycle. They include more liquid assets such as precious metals on the commodities side, and illiquid assets such as distressed debt strategies.
RUTM says many multi-asset funds are overly concerned with performance relative to the competition. It also believes many products just select the best of breed with little consideration for the alternative asset classes that could attract IFAs to these funds.
However, the funds will sit in the IMA unclassified sector, which could make it difficult for IFAs to compare them with products from firms such as Swip, M&G, Cazenove, Apollo and Premier.