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中文

Understanding
multi-asset funds

This chapter is designed to give a basic understanding of multi-asset (multi-manager) funds

Speak to a financial adviser if you require more information about multi-asset funds.

What are multi-asset funds?

Multi-asset funds provide investors with access to multiple funds and asset classes through a single fund, managed and monitored by dedicated experts on the investor’s behalf. This type of fund can increase the potential for diversification and help reduce the overall level of risk.

The role of the manager of a multi-asset fund is to have an in-depth knowledge of funds and fund managers, in the same way a fund manager should have an extensive knowledge of shares. Multi-asset funds are also sometimes called multi-manager funds.

The managers use their expertise to select the appropriate funds in each asset class and region with the aim of further reducing risk, resulting in a focused portfolio with plenty of potential to outperform. You can refer to chapter five ’understanding investment funds’ for details about performance.

Some of the various methods used to achieve this are more sophisticated than others, but in general terms, the tasks are as follows:

Asset allocation

Decide the correct blend of investments across regions and asset types.

Fund manager selection

Select appropriate experts in their respective fields.

Monitor and manage the managers

The manager will keep track of all fund changes (for example, investment style changes, fund group mergers, and fund manager changes).

This type of fund can increase the potential for diversification and help reduce the overall level of risk.

Types of multi-asset funds

There are many types of multi-asset and multi- manager funds available in the markets and choosing the right one for your needs is vital. Sometimes these titles are used interchangeably which can be confusing, but below we have tried to explain the main differences.

Multi-asset funds

The main focus for multi-asset funds is to provide diversification by investing in different asset classes. Multi-asset funds can use a mix of strategies instead of being restricted to investing in other collective investment schemes as ‘fund of funds’ do (see ‘Fund of funds’ later in this chapter). This means they are not restricted to investing in other funds but can choose to blend the usual multi-manager approach with investing in direct assets such as shares, bonds, or derivatives.

In general terms, the core advantages of all types of multi-asset funds are as follows:

  • Portfolio diversification – effective diversification can reduce risks associated with investing (see chapter 4 - Understanding Diversification).
  • Simplicity – the opportunity to achieve a diversified portfolio through only one fund.
  • Tax efficiency – they are actively managed, meaning the fund manager will buy and sell funds to achieve the overall objective. If funds were bought and sold in this way by a private investor, any gains made could, in some countries, be liable for tax.
  • Minimises paperwork – investors receive the paperwork for the multi-asset fund, not for all the underlying funds or assets.
  • Suitability – many multi-asset funds are ‘risk targeted’ or ‘risk rated’, meaning you can help ensure your portfolio meets your attitude to risk at all stages of your investment journey.

The additional benefits of the multi-asset approach are added diversification and potential cost benefits provided by the ability to invest directly in shares, as well as being able to react to certain market events in a more timely manner.

Multi-manager funds

The main focus for multi-manager funds is to provide diversification by investing with different fund managers. There are two main types of multi-manager funds in the market: ‘fund of funds’ and ‘manager of managers’ funds.

Multi-asset funds can use a mix of strategies instead of being restricted to investing in other collective investment schemes.

Fund of funds

A ‘fund of funds’ aims to create a blend of the most appropriate investment funds to meet a defined objective.

There are two different types of fund of funds:

  • Fettered funds (also known as ‘in-house’) - these only invest in funds managed by the same fund group. Therefore a fettered fund of funds provided by Schroders, for example, would invest exclusively in funds provided by Schroders.
  • Unfettered funds – these have the freedom to invest in funds provided by other fund groups.

Some groups take this even further and will set an in-house rule that excludes them from investing in any of their own company’s funds, ensuring all investments are external.

A fund of funds can provide a number of advantages. Individual funds within the fund of funds (known as the ‘underlying funds’) can be bought and sold almost immediately. However, the manager cannot specify how these underlying funds are managed. This can lead to asset overlap between funds if the different underlying managers pursue similar investment strategies. This leads us to one of the advantages of the second type of multi- asset fund – ‘manager of managers’ funds.

Manager of managers’ funds

In this case, rather than investing directly into specific funds, the ‘manager of managers’ appoints individual fund managers to buy assets directly.

A separate instruction or ‘segregated mandate’ is issued to each of the appointed managers, outlining the parameters by which the money is to be managed, as shown to the right.

For example, the manager of managers may have specific instructions as to the amount of

The fund is actively managed by the manager of managers with the aim of achieving optimum performance.

risk that a proportion of the fund is to be exposed to, or on the general investment style.

If an appointed fund manager is not performing satisfactorily against the mandate, they can be replaced. In this way, the fund is actively managed by the manager of managers with the aim of achieving optimum performance within the overall objective

Manager of managers’ funds often have a broad asset allocation – though they have different risk profiles, such as ‘cautious’, ‘balanced’ and ‘aggressive’, which may work well as core funds within a diversified portfolio.

What’s the difference between risk-rated and risk-targeted funds?

Risk-rated funds

Risk-rated funds are funds that are given a rating by an agency in relation to the level of overall risk they represent at any time. The rating is based on the information available at the time of the assessment and it could change at a subsequent review. The managers of such funds have no obligation to keep to a given risk rating.

Risk-targeted funds

Risk-targeted funds are managed in such a way as to control the amount of risk that investors are exposed to. Each fund has a risk target which acts as a guide as to how much risk you may be exposed to by investing in that fund.

Why invest in multi-asset funds?

Choosing the right funds and building a diversified portfolio can be difficult. The options available to an investor are almost limitless. In the UK alone, there are over 2,000 registered funds to choose from, and there are thousands of offshore funds, registered in places such as Luxembourg and Ireland, available to investors throughout the world.

New funds are constantly being launched, making it difficult to keep track of which funds and fund managers are the best at any one time.

Generally speaking, it is unlikely that a single fund manager will be capable of delivering consistent outperformance.

Making the right choice for a portfolio and then refining it and reshaping it over the years takes time, information and skill.

Fund managers need to be monitored to ensure they remain at the top of their game – and replaced when they are not.

Few private investors have the resources or expertise to do this properly. That’s where multi-asset funds can play a valuable role.

and finally...

All multi-asset funds offer a convenient way to access a wide range of fund managers and asset classes. Spreading investments across a wide range of managers and assets decreases the likelihood of a fall in value across the whole portfolio.

At the same time, multi-asset funds that are designed to target different risk levels make it simple to adapt a portfolio to suit an investor’s changing circumstances. For example, investors with no need to access their savings any time soon are likely to be able to bear more risk than those who are nearing the time when they do need to access their money.

Generally speaking, it is unlikely that a single fund manager will be capable of delivering consistent outperformance.