Funds gaining and losing the Elite Rating
Following its latest meeting, the FundCalibre investment committee has made a number of changes to...
Multi-asset funds offer a straightforward solution for many investors who prefer to leave the big decisions to professional fund managers.
But with more than 700 to choose from, and all sorts of different offerings (some will invest in other funds, which adds an extra level of diversification, while others will invest directly into assets, and others will do both). how can you identify the right fund for you?
Royal London Asset Management recently suggested three key criteria to consider when selecting a multi-asset fund: risk, asset allocation and cost. Here’s FundCalibre’s take on the three factors.
Different multi-asset funds will take different levels of risk. Some can, and will, invest up to 100% in equities if they want to, while others can only invest a maximum of 35%. So you need to make sure you are comfortable with your choice.
The sectors these funds sit in can help you narrow down your choices. The IA Mixed Investments 0-35% Shares is home to those that can invest between zero to 35% in equities, the IA Mixed Investment 20-60% Shares has funds which can invest 20-60% in equities, and so on. How much they allocate to equities at any one time will, however, depend on the fund manager’s view of the world and how positive or negative they are feeling towards the asset class.
A lower risk Elite Rated multi-asset fund is Jupiter Distribution. It’s ‘neutral’ allocation is a 70:30 ratio between holdings in bonds and equities, with the latter limited to no more than 35%. The current weighting is 26.9%*. It has a strong focus on risk control and capital preservation.
At the other end of the scale, TB Wise Multi-Asset Growth has no limits and currently has more than two-thirds* of the portfolio in equities from all over the world.
It’s not all about equities though. One of the key attributes of multi-asset funds is – as suggested by the name – they can invest in a number of different assets giving valuable diversification and the portfolio can be adjusted to better fit prevailing market environments.
The team behind Jupiter Merlin Balanced believes asset allocation is a ‘moral obligation’ and that it is vital not only to capture opportunities but also to avoid pitfalls. While usually long-term investors, they are not afraid to take advantage of short-term market movements that create opportunities or take swift, defensive measures when appropriate.
Premier Diversified Growth is a good example of where a fund invests in a range of assets. It currently has 60.5%* invested in equities, 6.7%* in property, 16.9%* in alternative investments, 12.5%* in fixed income, 0.8%* in hedges and 2.5%* in cash.
Manager Neil Birrell spoke to us recently about his asset allocation.
Cost is an important consideration, but we must emphasise that cheapest isn’t always best – it’s performance after charges that counts most. When it comes to multi-asset funds, much of the time they are more expensive than single strategy funds because you are paying for more than just stock-picking. You are paying for those all-important asset allocation decisions too. If the fund invests in other funds (a fund of fund), you will also be paying the underlying fund managers too.
One very competitively-priced fund is Rathbone Strategic Growth Portfolio. It sits in the IA Volatility managed sector as manager David Coombs looks to produce returns within certain risk parameters. With an annual ongoing charge of 0.76% it is comparable with many single-strategy funds, yet invests in all sorts of asset classes, either directly or via funds or ETFs.
VT Seneca Diversified Income is slightly more expensive at 1.14% per annum, but has outperformed its sector average by a high margin over one, three, five and ten years**. It also invests more in other funds and investment trusts.
Speaking of income, we at FundCalibre think that this could be a valuable fourth factor to add into the decision-making process. Do you want an income or not?
If you do, a multi-asset option like BMO MM Navigator Distribution might appeal. Mangers Rob Burdett and Gary Potter aim to deliver a high and reliable income via this multi-manager, multi-asset portfolio, which generally contains between 25 and 35 individual funds, balancing diversification and risk. The fund has an historic yield of 4.9%*
If you don’t – or only want a small income – then an option like Premier Multi-Asset Growth & Income may be more suitable. It is designed to grow investors’ capital over the long term, while paying a modest and rising income (currently 2.8%*). It sits in the more aggressive IA Mixed Investments 40-85% Shares sector and although it produces an income, it has managed to outperform the sector average over three, five and ten years**.
*Source: fund factsheets, 30 June 2019
**Source: FE Analytics, total returns in sterling to 31 July 2019