Multi-asset funds have seen significant growth of late, with figures from the Investment Association (IA) showing that multi-asset fund sales reached £2.6 billion in 2016.
Indeed, spreading investments over a broad range of strategies, styles, sectors and regions can help cushion the blows during market downturns and also capture upsides - without having to time the markets.
The popularity of multi-asset products is due to the fact that investors see them as lower risk than traditional equity funds but as having more potential for growth than traditional bond funds. This was mirrored in a recent survey carried out among advisers by FE. When asked which types of investment products were the best at managing risk, 24% of advisers listed multi-asset funds.
Managing risk is arguably one of the greater challenges advisers face. Anticipating the release of a paper by the Financial Conduct Authority (FCA) early next year which will look at risk and advice, FE did some research which showed that some 70% of financial advisers now build their clients’ portfolios to risk targets.
Multi-asset risk targeted funds operate within tight risk bands aiming to provide the best possible return whilst staying within their risk target.
A recent article from Money Observer claims that the IA plan to release a new risk focused sector to house these funds within the IA universe. Currently, however, many risk targeted multi-asset fund sit within the IA’s Unclassified sector. And without the right context and benchmark, these funds may be harshly judged by investors.
To illustrate the necessity of a relevant benchmark, we take the FP – Verbatim Portfolio 3, which returned 35.30% over five years as of the start of February. When charted against the IA Unclassified sector the fund’s performance does not look all that impressive, in fact, it looks to be underperforming.
FE are one step ahead in realising it is important to make clear to fund selectors that the performance of these funds should be assessed in the right context. Last year we launched our own universe of Risk Targeted Multi-Asset (RTMA) sectors which divide risk targeted funds by their FE Risk Scores. The FE Risk Score is an accessible tool for advisers to understand risk, they score funds on a scale in relation to the FTSE 100 which has a Risk Score of 100. FE’s RTMA sectors are available to advisers through our fund research platform FE Analytics and range from Risk bands 1 – 5.
We can see below that when the FP fund is plotted against FE's Risk band 1 sector, for funds with an FE Risk Score of < 30, it is actually performing at the top of the sector, making it the best performing fund within its risk target.
We are likely to see risk targeted multi-asset funds continue to rise in popularity so it is in the best interest of providers to promote their funds in the right context, making sure investors are getting the best performing investments within their given risk band.
To find out more about FE Analytics and how advisers are viewing your funds, get in touch equiries@financialexpress.net.