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New Model Adviser®
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CHAPTER 2
ONE-STOP SOLUTION
OR A DIVERSIFIED
BUILDING BLOCK?
MULTI-ASSET IS A BROAD CHURCH, BUT WHEN
AND HOW DO ADVISERS USE THESE FUNDS?
HANNAH SMITH
When the overhaul of the UK’s
pension system was announced
two years ago, many industry
commentators predicted the new
freedoms would cause a boom
in the use of multi-asset funds
by advisers.
In its Asset Management in the
UK 2014-2015 survey, the
Investment Association (IA)
predicted a surge of inflows into
multi-asset funds as investors
chose to leave their assets
invested throughout retirement.
Multi-asset funds had already
been taking a growing share of net
flows in the marketplace and
reinventing themselves as the
solution to many investors’
problems. Flows into mixed-asset
and outcome-oriented funds
were rising rapidly from the
mid-2000s to a peak of £10
billion in 2010, IA data shows.
But after a period of strong sales,
net flows into the IA’s mixed-asset
group of funds slowed somewhat
from £5.9 billion in 2011, through a
low of £2.8 billion in 2012, to over

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the £4 billion mark again in 2013.
Between 2014 and 2015, net retail
sales fell from £3.9 billion to
£2.5 billion, their lowest level
since the financial crisis.
However, it should be
remembered that some multi-asset
funds sit in the unclassified sector,
meaning they do not show up in
the mixed-asset sales figures.
Lately, investors have become
more interested in total return and
income funds – net retail flows
into UK equity income totalled
£4.3 billion in 2015, while the
targeted absolute return sector
took £4 billion.
Although the focus of some
investors may have begun to shift,
multi-asset strategies remain a key
part of many portfolios. So how are
advisers and financial planners
using them now to meet the needs
of their clients?
AS OUR PROCESS HAS CHANGED,
WE HAVE MOVED AWAY FROM
TAKING PRODUCTS OFF THE SHELF
TOWARDS BUILDING OUR OWN
MULTI-ASSET MODEL PORTFOLIOS
MIKE HORSEMAN
COCKBURN LUCAS
A winning concept
Multi-asset funds invest across
a range of asset classes and
geographies without a specific
focus on any one particular area.
They are a broad church,
including everything from multi-
manager funds to absolute return
funds to passives, as well as model
portfolios and discretionary fund
manager portfolios.
Advisers still like multi-asset as
a concept, but in many cases they
are looking at outsourcing and
model portfolios, rather than
buying individual funds as they did
in the past.
Mike Horseman, managing director
of Cockburn Lucas, says in recent
years his firm has changed the way it
approaches multi-asset investing.
‘We do and have used multi-asset
funds in the past, but as our process
has changed, we have moved away
from taking products off the shelf
towards building our own multi-asset
model portfolios,’ he says.
‘We are massive fans of the
multi-asset approach, as most
discretionaries are. As a strategy,
absolutely [we like it], but then it is a
question of delivery.’
Multi-asset funds are often used for
clients with small pots of money to
invest. Claire Walsh, chartered
financial planner at Aspect8, says her
company uses model portfolios for
the majority of clients. However,
where multi-asset funds come into
their own is for those with smaller
pension pots.
‘We have our own model portfolios,
so we would use that for the majority
of clients’ money, but we do that
within a Sipp for pensions. Where
people have less than £40,000, such
as our younger clients, we would use

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a multi-asset fund,’ she says.
‘For large pension pots and
investments, we use discretionary
portfolios. The reason for this is
that, for smaller pots, the Sipp
provider charges would not be
cost-effective and, also, if someone
didn’t want an ongoing service, it is
quite straightforward.’
Alistair Cunningham, financial
planning director at Wingate Financial
Planning, also uses multi-asset
products for clients with no ongoing
service from the firm, considering
passive options where appropriate.
His preferred provider for this
purpose is Architas, which he
describes as a ‘good fit’ with Wingate,
given both firms use eValue as part of
their asset allocation process, making
risk mapping easier.
Cunningham also highlights cost
as a crucial factor. ‘Cost is obviously a
big differentiator if you are looking at
passives. We want access to the
instruments at the lowest possible
total expense ratio, as well as
availability on the platforms we
actually use, of course.
‘We use AXA Elevate, where we get
access to the S-share class, which is
very cheap, but we also use Architas
on other platforms, where it is a
low-cost solution.
‘Secondary to that, we would use
the likes of MyFolio, Seven
Investment Management, maybe the
Aviva Investors funds, although that is
a blended solution, which is heavily,
but not exclusively, passive,’ he adds.
Horseman says although his firm
now spends less time looking at
individual products than before,
previously they were happy to use
multi-asset offerings from Schroders,
Ruffer and Jupiter among others.
Walsh uses Aviva Investors’
risk-rated multi-asset funds via
Aviva’s own platform, highlighting
their low cost and straightforward
approach. Her firm also has some
clients in Standard Life Investments’
MyFolio range.
‘The way we work as a firm is we
have a methodology [which fits with
Aviva’s multi-asset funds], but if I have
clients already in Standard Life [funds],
then it wouldn’t make sense to move
them,’ she says.
Diverse delivery
But what do advisers look for in a
multi-asset fund? Once they have
established whether it is a single
strategy, such as a multi-asset equity
I DON’T THINK ESOTERIC
INVESTMENTS ARE SUITABLE FOR
MOST RETAIL CLIENTS. IF WE CAN’T
EXPLAIN HOW A FUND WORKS TO
A CLIENT, HOW CAN WE USE IT?
ALISTAIR CUNNINGHAM
WINGATE FINANCIAL PLANNING

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fund, or highly diversified across a
number of asset classes, they will
want to look under the bonnet to see
the holdings powering performance.
They want to understand the
objective of the product and how the
management team aims to deliver it
consistently, while staying within the
stated risk parameters.
‘We would be looking at process,
people, performance and charges,
and the objectives, as we would with
any other fund. We want to see a
repeatable process, consistency and
the drawdown on the product,’
Horseman explains.
Multi-asset funds can be
deployed in different ways to
deliver the outcomes clients need.
Some advisers use them as a simple,
one-stop solution to give a client
exposure to a diversified spread of
investments. Others may use
multi-asset funds as part of a
broader strategy, adopting a
core/satellite approach.
Horseman gives an example of
how he might use a core/satellite
approach in a client’s portfolio,
usually in response to their request
for certain types of exposure.
‘If we had a client with a low to
moderate risk profile, we might put
70% of their portfolio in a “steady
eddy” multi-asset solution, such as
Ruffer, as a core holding.
‘Then around it, we might have
satellite investments, such as
commodity products, Standard Life
Gars, or emerging market funds. This
puts a turbo charge on the engine. It
would be driven by client input – for
example, if they said they wanted
emerging market exposure.’
By contrast, Cunningham says
he would not typically use a core/
satellite approach, preferring to go
for the lowest cost option,
especially if a client is happy to
be in passive products.
‘We have active and passive
solutions, and we are not precious
about either one of them,’ he says. ‘If
the client wants the lowest possible
cost and has no preference for active
management, then in many cases the
best way you can do that is through a
multi-asset passive fund and not
through a collection of ETFs and
passive instruments.’
Esoteric investments ‘too
clever for their own good’
In a low-yield environment, fund
providers have been feeling the
pressure to offer retail investors
access to the less liquid, higher risk
areas of the investment universe, in
the hope of capturing better
returns. But Cunningham suggests
some of these hedge-fund-style
strategies have become ‘too clever
for their own good’, and admits he
actively avoids them.
‘I don’t think esoteric
investments are suitable for most
retail clients. If we can’t explain
how a fund works to a client, how
can we use it?’ he says.
He also notes that not all funds
trying to extract returns from the
more exotic corners of the market
have actually been successful, so
investors can end up taking on a
degree of complexity, cost and risk
for minimal benefit. His firm prefers
to keep it simple and just use
long-only funds, investing in
conventional asset classes, such as
equities, bonds and cash.
Aside from the dangers of
unusual asset classes, multi-asset
funds also bring the risk of
‘diworsification’. This may happen
when a fund invests in too many
assets with similar correlations,
potentially reducing its returns.
With many of the funds in the
market – some now very large
– invested with a similar split of
assets, they could all start to move
in tandem.
‘Multi-asset appeals to those of
us advising clients aged 50 and
above in accumulation or
decumulation who want low
volatility,’ says Horseman. ‘But you
get overlap and all those funds are
heading in one direction. So are
you getting any benefit?’
He also notes that the key to the
success of any multi-asset strategy
is the team making those asset
allocation decisions. ‘If the
management team doesn’t work,
the fund doesn’t work either.’
The key to choosing the right
product is to understand exactly
what it does and how, and
remember that a multi-asset fund
is only ever as good as the people
behind it.