In the world of 24-hour rolling news, it’s always easy to get caught up – and ultimately overreact – to market events. And let’s be honest, the news headlines that stick are normally the negative ones.
This is no different in the world of finance, the focus on the negative is palpable. So its perhaps no surprise that a recent survey found that 52% of Brits haven’t even considered investing in the past year*. Emotion is only one of the reasons for this – there is also a lack of knowledge, mistrust and a belief that investors needs a lot of money to start investing at all.
The reality could not be more different on the investment front – you can invest in small amounts and while there have been some negative stories, the vast majority of companies have proven themselves trustworthy over many decades.
Where to get started?
What is more off-putting is the lack of knowledge and the overwhelming choice available to investors. A Centre for Economics and Business Research poll found 73%* of Brits fell below an ‘average financial knowledge benchmark’.
With over 40,000 global stocks to choose from and around 4,500 UK listed funds the overarching question for investors is where to begin? The shear volume of choice is enough to put anyone off, let alone a beginner. Suddenly you’re asking yourself: What if I make the wrong choice? Which sectors, regions and assets are best suited to me? What’s style bias? And how much risk should I be taking?
A simple solution: multi-asset funds
Step forward multi-asset funds – they differ from traditional funds by targeting a specific investment outcome, such as a return above inflation, rather than performance against a specific benchmark or index like the FTSE 100 (the largest 100 companies in the UK stock exchange) or the S&P 500 (the largest 500 in the United States).
Instead, the managers of these funds often have the flexibility to invest across asset classes, geographies, styles and other investment managers. The ultimate goal is to create a flexible range of investment instruments that can seek out growth opportunities as the market environment changes, while carefully managing risk.
Essentially, they take the decision of what and where to invest out of your hands – with managers having the potential to quickly adapt to markets as and when they need to. These funds can take different guises – some invest directly in stocks, while others build portfolios from other funds (this is a called a fund of funds approach).
But the proof is in the pudding – and the diversification tools and risk management skills of these multi-asset portfolios has proven a big hit with investors over the past couple of decades, with many becoming the bedrock of an investor’s portfolio.
These vehicles do tend to cost a bit more than a typical active fund – but the additional oversight offered by the right manager usually makes it more than worth it.
Five benefits of multi-asset funds
- Managing risk through diversification
Multi-asset funds can offer investors exposure to a broader range of assets, sectors, strategies and direct investment exposures with greater flexibility. They are diversified across both traditional and non-traditional asset classes, such as real estate and infrastructure – some of which are typically harder to access outside of the multi-asset structure. The goal is to provide the opportunity for growth while carefully managing risk. One example would be VT Momentum Diversified Income, the fund looks to produce a high level of regular income, with the prospect of preserving the real value of capital in the long term. It invests in numerous sectors, with almost half its exposure in specialist assets like healthcare, and aircraft leases & sales**.
- Specific outcomes
Many of these strategies are focused on a specific outcome – such as a targeted return above inflation. This helps investors better understand the risk they are taking. Manager David Coombs and his team run the Rathbone Strategic Growth Portfolio, which is one of the new breed of portfolios that target risk and then look to maximise returns. The fund aims to deliver a greater total return than the Consumer Price Index (CPI) measure of inflation +3%, after fees, over any rolling five-year period by investing across actively-managed funds and investment trusts, as well as passives and direct equity holdings. Underlying assets will include fixed income, equities, commodities and property, as well as alternative investment strategies.
- Flexibility to change exposure to assets
A multi-asset portfolio is designed to navigate potential market shifts through tactical trades, tilts and factor exposures. It has the flexibility to respond to changing market conditions, for example the impact of rising interest rates on markets. A good example here is M&G Episode Income, a portfolio that invests directly in individual stocks and bonds, while property exposure is achieved by investing in property funds. Manager Steven Andrew uses behavioural finance to find pockets of value and invest against the herd, rather than following it.
- Enhance income opportunities
Finding an acceptable level of income has been easier in recent year due to rising interest rates. But for much of the time post the Global Financial Crisis it has been an incredibly challenging time for income investors. Multi-asset funds give them access to an extended number of income streams across a wide variety of asset classes. Aegon Diversified Monthly Income manager Vincent McEntegart draws upon all of Aegon’s investment capabilities to build this multi-asset portfolio using the most attractive income opportunities the team has identified. The manager decides how much to allocate to equities, fixed income, property, and specialist income sectors (such as renewable energy) to spread the risk and balance the sources of income. The fund targets an attractive yield (around 5% per annum), which is paid monthly.
- Access to “best-in-breed” investment managers
Multi-asset portfolios can provide you with access to some of the world’s leading investment opportunities and money managers through an open architecture approach. The Jupiter Merlin Balanced Portfolio, for example, aims to provide a return, through a combination of capital growth and income, over the long-term. It invests in names like Fundsmith Equity, Man GLG UK Income and Evenlode Income for equities exposure, and names like Aegon High Yield Bond for fixed income**.
There’s no such thing as a one-size-fits-all investment, but a multi-asset fund can be a shortcut for those looking to dip their toe into the world of investments. A multi-asset fund is an easy way to have access to a range of asset classes without the hassle of rebalancing and learning the ins and out of asset allocation. A professional investor does all that for you.
*Source: First Sentinel Wealth Management, January 2024
**Source: fund factsheet, 30 April 2024
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.