Published: 4 December 2018
The idea of spreading your money across different assets, as a way to help manage risk when investing, is one that many of us are familiar with.
So it’s no surprise that funds promising one-stop-shop diversification are proving popular with investors. Perhaps the best known of these are multi-asset funds.
Barely a week goes by without another multi-asset proposition coming to the market, with BlackRock and HSBC among the big names announcing launches in early November alone. Assets under management in the funds have been rising steadily in the years since multi-asset investing entered the mainstream in the wake of the financial crisis.
There was almost £220bn invested in mixed asset funds by the end of 2017, according to the Investment Association (IA)1, with another £7bn or so in the multi-asset investment trusts housed in the Association of Investment Companies Flexible Investment sector2.
Here’s our practical guide to how multi-asset funds work and what you might want to keep in mind if you’re considering investing in one.
At the most basic level, they invest across different assets, sectors and (often) regions, adjusting their investment mix as conditions and circumstances change, aiming to keep in line with their particular investment objectives. For example, they may invest in the main asset classes of equities, bonds, property and cash, as well as a varying range of ‘alternative’ assets such as derivatives, foreign exchange and private equity.
The approach is based on the theory that when one or two asset classes fall in value, others will rise. So if a fund is invested in several asset classes, investors can be confident that when some portfolio components are going down, others will likely go up.
The way the money is spread across the different assets and rebalanced over time will depend to a significant degree on the level of risk they say they will take (more on that to follow).
While some multi-asset funds invest directly in the various asset classes, multi-manager or funds-of-funds invest through a selection of other funds. The manager of a multi-asset, multi-manager fund will gain diversification by investing in equity funds, bond funds, property funds and so on. A variation on this approach is offered by multi-index funds, which invest in different passive (i.e. tracker) funds across different assets. This is effectively an actively managed fund of passive funds, providing a blend of the two approaches.
No. As more new launches come to the market, the investment approaches used by multi-asset funds become increasingly diverse. Under the multi-asset banner can be found funds that are income-focused, growth-focused, high risk, low risk, active, passive, equity-based, bond-based and those that are aimed at different markets, to name just a few differentiators. Recent developments have included the emergence of funds tailored towards pension investors and which target certain levels and frequencies of income.
There are several other distinguishing features to look out for. The Key Investor Information Document (KIID) for a fund is generally a good place to start. It will give you regulator-mandated information about things like the fund objectives, charges and an idea of its relative risk level.
Charges can vary widely, funds with similar labels can have quite different risk levels and the types of assets in which they invest can be quite different too, even between what seem like the same types of funds. Thorough research is always essential before you commit to anything.
The big appeal is the promise of investing across sufficiently varied asset classes in a single fund to ensure a decent level of diversification. Putting together and maintaining a diversified portfolio of investments can otherwise be a challenge for investors who aren’t working with a financial adviser. It can take a lot of time and skill to do and then maintain effectively.
One is the challenge of comparing funds effectively within the multi-asset universe, such is the breadth of choice and the range of investment approaches on offer.
Charges are important to be aware of too. Some of the more passive investment focused (multi-index) funds can be relatively low cost at one end of the scale. At the other, multi-asset, multi-manager funds that are actively managed at both levels can be quite expensive, as you are paying for two layers of expert fund managers.
Look out for the Ongoing Charges Figure in a fund’s KIID as a helpful point of comparison. On the plus side, multi-asset fund charges are on the way down overall, falling from 1.34% in 2014 to 1.13% in 2018, according to research by Defaqto3.
Funds that invest between 40 and 85% in equities can be found in the IMA Mixed Investment 40-85% Shares sector. There are also large numbers in the Mixed Investment 0-35% Shares, Mixed Investment 40-60% Shares and Flexible Investment sectors.
You can use the Investment Screener in our Morningstar research tool to pull up lists of and essential documents (like the KIID) for the funds available in these and other IMA categories on the Alliance Trust Savings platform.
There’s a large number of multi-asset funds for investors to choose from. If you are considering investing in one it will help your research to have an idea of your longer-term financial objectives and how much risk you are willing and able to take to meet them.
And remember, like all investments, multi-asset fund investments can go up and down in value and you may get back less than you put in. If you are unsure whether an investment is suitable for you it’s generally a good idea to seek professional financial advice.
This is provided for general information only and takes no account of personal circumstances. It is not a recommendation to buy or sell. It is provided solely to support you in making your own investment decisions. If you have any doubts as to their suitability you should seek expert advice. Alliance Trust Savings does not give financial or investment advice.
Laws and tax rules may change in the future without notice.
Please be aware that the value of investments can fall as well as rise so you could get back less than you invest.
1 Investment Association, Funds Under Management statistics
2 Association of Investment Companies, Find and compare investment companies tool
3 FTAdviser - Fees on multi-asset funds drop further in 2018 - 29 March 2018
Alliance Trust Savings Limited is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings Limited gives no financial or investment advice. ‘Alliance Trust Savings’, ‘ATS’ and 'AT Savings' are all brand names of Alliance Trust Savings Limited together with the ‘Alliance Trust Savings’ logo are owned by and used with the permission of Alliance Trust PLC, the previous owner of Alliance Trust Savings Limited.