A former client of mine from my time working as an investment adviser recently asked me what I thought about multi asset funds. By multi asset she meant funds that hold a range of asset types (often as low cost ETFs which can be traded almost instantly at low cost) and mix them up according to a stated objective which is usually specified in terms of risk and expected return.
They had been presented to her as a better option than a selection of specific individual asset allocated funds in market sectors, on the basis that the manager of a multi asset fund can change the asset mix much faster than an IFA can because the IFA has to go through all the hoops of making recommendations and getting client approval. Even an investor who runs their own asset mix and looks at their portfolio every day can’t trade as fast as a city institution, and probably has less information. The advice this investor had received even suggested that IFA’s are not really capable of advising clients what to do when there are sudden changes in markets. That comment came from the client’s own IFA!
It is undeniable that a multi asset fund manager could quickly take money out of a market really quickly and move to cash or another type of asset if the fund prospectus and objectives allow that: investors need to know exactly what multi asset means for the fund they have in mind as it is not a narrow term and is open to interpretation. But even assuming a fund is recommended with absolute flexibility and manager discretion, some questions arise about the alleged advantages.
The suggestion that trading in and out of the market on the basis of short term news flow or analyst predictions would make you more money is largely discredited. Even if it does work, how do you know that the manager of your multi asset fund is any good at it? The evidence of returns from multi asset funds that seek to lower risk (absolute return funds) is that the managers in the main are in fact not at all good at it – I have written about that previously.
Furthermore, a single multi asset fund will have an objective that is decided by the people who want to market it – not your needs as an investor. A portfolio you build yourself or which is set up by a competent investment adviser will be designed to meet your risk requirements, cash flow needs and interest in the subject and typically won’t need to be quickly re-organised because of ups and downs in the stock market cycle – the existence of the cycle will be assumed and built into the portfolio design.
It is often true that the fees for multi asset funds are higher than for sector specific funds. OK, you may say, because they are managing the assets actively. If that is true, why are you paying an adviser if they have “out sourced’ this task because they don’t have the relevant expertise? You are paying twice. Would you go to the hairdresser and pay once to be told what style you need and then pay again in full for the actual haircut? Maybe some people would but at least they would appreciate what they are doing.
There is arguably a role, in my opinion, for ‘funds of funds’ which are slightly different. Here a manager picks funds or shares/ETFs with a specific focus where perhaps you or an IFA can’t access the whole market because it is too specialist or esoteric . I have invested in ethical multi manager funds myself, accepting the slightly higher fees. To date, as I maybe should have expected, the multi holding selections of the specialist have not really done any better than my own narrower researched funds mix.
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