It is hard to judge multi-asset funds over a short period, said the director of an investment firm in response to a survey found they failed to protect investors from volatile equity markets in 2018.
The comments from Sam Liddle, director at Church House Investment Management, followed the publication of Natixis Investment Managers’ global portfolio barometer, which analysed 421 moderate risk model portfolios in the last six months of 2018 across France, Germany, Italy, Latin America (including US-offshore), Spain, the UK and the US.
The report found adviser portfolios delivered negative returns across all regions, driven by falls in equity markets.
Equities were the largest contributor to negative returns in all regions, costing around 3-5% on average – except in Italy, where advisers had much lower equity allocations. However, multi-asset funds were the second largest detractor, costing 0.5-2% on average, and particularly affecting France.
Liddle told International Adviser: “It’s debatable whether it’s appropriate to judge a strategy such as multi-asset investing over one calendar year.
“The increased volatility in October and December produced attractive buying opportunities in many asset classes, so those multi-asset managers who had banked up their allocations to managed cash and exploited the opportunities might show that they deliver stronger upside participation than downside participation when looked at in the round.
“The difficulty for multi-asset investors in 2018 was that not a single asset class made a positive real return (in excess of US CPI).
“This was worse than 2008 when UK gilts and US treasuries provided pretty strong gains as interest rates were slashed towards the end of that year.”
Italian resilience
Italy was the most resilient market in 2018, with estimated losses of 3.2% for the average adviser portfolio, which Natixis said was due to a much lower allocation to equities.
Advisers in Italy had an average equity exposure of just 20%, while the UK and the US had a more bullish position, with equity weightings of over 50% in moderate risk portfolios.
Matthew Riley, head of research in the portfolio research and consulting group at Natixis Investment Managers, said: “It’s natural for investors to seek shelter from volatile markets by diversifying portfolios, but it is clear from our analysis that, in 2018, the majority of multi-asset funds fell short and largely failed to diversify, which only added to portfolio losses.
“Our findings show that investors really need to look more closely when selecting a multi-asset fund, ensuring that the fund is aligned with their investment objective.
“This due diligence should include checking the fund’s correlation to their existing portfolios, as well as to bonds and equities, to make sure it will improve the risk-return profile of the portfolio.”
