On the face of it, multi-asset funds make a lot of sense. You would not want a football team made up entirely of right-footed players or those who could only head a ball. You need a balance, a mix of abilities and attitudes in order to achieve the optimal performance. And above all you need someone to manage the various egos and characters effectively. This is the difficult bit and it is rare to find someone who can do it consistently. Sir Alex Ferguson and Arsene Wenger are but two that spring to mind, and each of them have had periods whereby the doubters were out in force questioning whether they had ‘lost’ it at some point in their careers.
So it is with multi-asset funds and those that run them. At various points over the past decade the following asset classes have been top of the tree – property, equities, government bonds, corporate bonds, high yield bonds, physical gold and precious metals, natural resources – and they have more or less all been bottom of the tree, too. So if you put the various components into one fund, add in a few derivative trades and some currency plays for good measure, ask someone to manage the parts so that the whole produces a positive return through all weathers then, hey presto, you have the perfect investment solution. What is there not to like?
Performance, in a nutshell. Most multi-asset funds have been disappointing to say the least. But then there is a fair bit of confusion about where the difference lies between a multi-asset fund and an absolute return fund. Just because something is multi-asset, should we expect an absolute return across all market cycles? It all depends on the assets concerned. In 2008 virtually all assets except gilts and other government bonds fell. Correlation existed where none had done so before. It was even more disappointing to find that many absolute return funds whose shorting abilities should have made such an environment the perfect scenario, also suffered negative returns.
It is no good either if the fund you invest in simply sets itself the target of avoiding capital loss. Investing is about capital gain and income too, and too few of these funds deliver on the upside as much as they should. Using the football analogy again, if you go through the season drawing 0-0 you might be unbeaten, but you will probably be relegated.
Managing multi-asset funds needs a certain skill set, and will only be successful if it is a team effort. I do not think that the single multi-asset expert exists. I hold my hands up for being guilty in dismissing the Standard Life GARS fund as being too big, too complicated and unnecessarily busy. They have proved me wrong, at least in the past couple of years, by delivering an attractive positive return through numerous strategies spanning several asset classes. I still doubt whether this is sustainable indefinitely, but then I’m stubborn. Unless you need to put a client into just one fund and leave them there, I prefer to invest in the different asset classes through funds that are managed by individual specialists and that allow me to allocate between them as I see fit.
It is simply impossible to run a multi-asset offering without a team approach that sees specialists covering each asset class individually as this allows a fund to be prepared for all market conditions.
Andy Merricks is head of investments at Skerritt Consultants