The paper titled ‘Multi-Asset: The evolving opportunities’ began going out to clients yesterday and is based on research by CoreData Research on the multi-asset landscape over the past ten years.
According to the paper there has been a large increase in money invested in multi-asset products over the past decade, rocketing from £21.5bn to £126.5bn. The number of funds has also rocketed, going from 263 funds in 2005 to 653.
Not only has there been a big shift in the amount of assets under management in these strategies, there has also been significant change in the make-up of multi-asset funds over the ten years.
The biggest broad change identified by the researchers is a shift from being largely just a combination of the big two traditional asset classes to holding a wider range.
While equities and bonds clearly remain the foundation of multi-asset funds the paper says that a number of other classes have been increasingly used to help generate income while keeping risk within desired parameter. These include commodities, emerging market debt and commercial property.
“The flexibility to invest in a wider range of asset classes also means the fund manager is better able to manage the risk levels of the portfolio, be they high, medium or low,” said Bill McQuaker, co-head of multi-asset at Henderson. “They also have a greater ability to use cash to minimise losses in bear markets,” he noted.
Another significant shift has been in the costs, largely driven in the latter part of the ten year period by the Retail Distribution Review. The paper notes that post the RDR, ‘fee unbundling’ has split out adviser fees from investment fees and therefore there is more price pressure on multi-asset fund providers.
“Cost is a much debated issue in the world of multi-asset funds,” McQuaker said. When multi-manager funds first came to market they were criticized for adding a layer of fees. However as the market evolved, advisers began to understand the value add of hiring a specialist to take responsibility for building a portfolio.”
Greater use of exchange-traded funds and passives over the period has also helped to bring average fees down, the paper said.
In terms of the potential for future growth of multi-asset McQuaker points to the increasing demand for income producing products that is already happening as the population ages, and will be significantly accelerated by upcoming changes in pension legislation.
