Multi asset – Feature A dose of Covid
There has also been the matter of Covid. How have multi-as- sets strategies fared during this time? One immediate thought is if they could swim in the chopping waters of the financial crisis then the storm of Covid should have proved an easier sea to navigate.
This has proved to be the case, at least for some strategies. Unsurprisingly, multi-asset funds with a greater allocation to technology have sailed through, dominating the best perform- ing funds of all type over the past three years, proving effective not just during Covid, but also pre and post the Covid lock- down period. “With multi-asset funds over the past 12 to 18 months, we have seen a lot of inflows, and, in fact, now the assets are roughly equal to those in the fixed income funds, which is fairly remarkable,” Morningstar fund analyst Bhavik Parekh says. “But having said that, the last quarter was the lowest inflow since the middle of last year. So, slowly, interest has been wan- ing, but is still pretty strong,” adds Parekh. Morningstar’s data ultimately concludes that multi-asset funds generally deliver a good investor experience. But the positive multi-asset outlook during Covid is not true across the whole picture. “The broad nature of multi-asset strategies suggest that investors will have likely experienced varied results,” Thomas says. “While predicting the Covid crisis was impossible and would have likely caught funds with equity market exposure off-side, the subsequent rapid rally would have been equally problematic to capture the upside,” Thomas adds. “That said, multi-asset strategies with less directional exposure would have benefited from the elevated volatility environment.” But research from one consultancy during the summer found that in the seven years to 2020, £30bn was wasting away in third or fourth-quartile multi-asset fund products over consec- utive five-year rolling periods. This accounted for a fifth of all multi-asset funds.
On this issue, one researcher said: “Multi-asset funds were meant to offer the best of both worlds by allowing participation in equity markets but without the same level of volatility – and ultimately risk. “Some funds have done this – capturing much of the upside when markets rise and providing a good degree of protection when markets fall. However, many have not, consistently lag- ging their peers,” they added.
Growing alternatives
One trend seen in multi asset during the pandemic was a greater diversification into alternatives. Is this trend likely to continue? “Adding alternative assets, with their proven low cor- relation with traditional asset classes, is an effective tool in the
For a multi-asset solution, carefully considering strategic investment decisions is only one pillar to generate returns over
the long-term. Maria Municchi, M&G Investments
multi-asset manager’s armoury and is a general trend that we expect to see continue in overall strategic asset allocations for institutional investors,” Thomas says. And while Border to Coast is not involved in setting the overall strategic asset allocations, it has witnessed a growing interest in alternative assets in the pool, where sectors such as infra- structure, real estate and private equity are increasingly attrac- tive due to their uncorrelated nature to broader equity and bond markets.
“They offer the diversified sources of return needed to build resilient portfolios that can provide a buffer against market vol- atility and offer long-term returns,” he says. Asset owners are exploiting multi asset in its various forms. The £30bn Brunel Pension Partnership launched a multi-asset credit fund to gain exposure to a diversified portfolio of enhanced credit opportunities with modest-to-low exposure to interest rate risk is one example. Brunel’s senior investment officer, Daniel Spencer, says: “The portfolio is very different from our other portfolio offerings, enabling our clients to reduce risk while still achieving reason- able returns through the use of diversified credit.” With the on-going challenges facing the market, multi asset could well offer a route out of the more challenging scenarios. A point made by Thomas: “A multi-asset approach to investing can allow for a flexible management approach with the ability to adjust and adapt, which can prove valuable in a more volatile market environment.”
Issue 108 | November 2021 | portfolio institutional | 47
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