Martin Bamford's presentation for the BrightTALK Multi-Asset Summit on 16th September 2015.
A recent report suggested that nearly half of IFAs are recommending their clients invest in multi-asset investment funds. Increased market volatility appears to have resulted in more IFAs recommending these fund solutions. Despite their rising popularity, are multi-asset funds the panacea they appear to be? Are IFAs delegating too much responsibility for risk management and investment performance when opting for multi-asset funds, instead of constructing a portfolio of single-asset class funds? In this presentation, Martin will explore the arguments for and against the use of multi-asset funds for advised investment clients. His conclusions might surprise you.
3. Research
Baring Asset Management Investment Barometer
47% of intermediaries encouraging clients to invest in
multi-asset products
Up from 36% last time they asked
Highest since question first asked in Q2 2011
4. Definition
Combination of asset classes in one fund
Manager responsible for asset allocation & stock selection
IMA Mixed Investment sectors
5. The Bad Old Days
Cautious, Balanced, Active Managed
Half of cautious managed funds invested in alternative
investment strategies
“Barclays fined £7.7m for Aviva fund sales failings”
Mixed Investment
“provide greater clarity to consumers”
6. Weak reasons
HSBC – interview of 200 intermediaries
Most important factors:
Client knowledge of the provider
Existing relationship with provider
Least important factor:
Skill & expertise of fund manager
8. Sector performance
Mixed Investment 40-85% Shares cumulative performance:
0.69% 1 year
20.89% 3 years
31.74% 5 years
UK All Companies cumulative performance:
1.55% 1 year
31.35% 3 years
50.04% 5 years
Source: FE 15th
September 2015
9. Mixed Investment 20-60% Shares
139 funds in this sector
Ongoing Charges range from 0.24% to 3.8%
One year performance range from -7.75% to 7.19%
Volatility ranges from 0.63 to 2.65
10. Why?
Fire & forget solution
Abdicates responsibility
Lack of in-house resources
Focus on Financial Planning
11. Getting better
Risk target managed funds
Run to stay within risk profile boundaries
Offers suitably diversified exposure
12. Even better
Determine strategic asset allocation
Make tactical adjustments
Populate with single asset class funds
13. Get in touch
martin@icfp.co.uk
@martinbamford
www.icfp.co.uk
Editor's Notes
Ongoing Charges for funds in this sector vary massively, from 0.24% for the Vanguard LifeStrategy 40% Equity Fund to 3.8% for a fund called Barmac Castleton Growth. The typical Ongoing Charges figure seems to be around 1.6%, so these are predominantly actively managed funds although a small number follow an index tracking strategy.
Performance of funds in this sector over the past year has ranged from -7.75% for the Old Mutual Voyager Diversified funds to +7.19% for Kames Ethical Cautious Managed. And for the 39 funds in this sector that have a 10 year record, if you had picked the worst performer, Aberdeen Multi Manager Multi Asset Distribution, your return would have been 17.07%. Picked the best performer, Ruffer Total Return, and your total return would have been 107.75%.
Volatility of funds in this sector, measured as the standard deviation of the fund's returns over the last 36 months, ranged from 0.63 for Premier Multi-Asset Conservative Growth to 2.65 for EFA New Horizon Income & Growth.
So a huge range of possible outcomes, suggesting that multi-asset fund selection isn’t a simple case of hoping for the best.