It’s probably a fair assessment that nearly all of the more than €300bn (£271bn) of net investment in multi-asset funds over the past three years across Europe stem from the retail sector.
Multi-asset funds (or funds-of-funds) are an ideal vehicle for do-it-yourself investors looking for a simple, risk-managed investment solution that delivers a steady return.
“Five of the 10 most popular products on our execution-only platform are multi-asset funds,” says David Karni, head of portfolio management at BCC Risparmio & Previdenza, a collective of regional banks in Italy. “If you have ‘income’ in your name as a fund, you’ll get inflows.”
But does investing in multi-asset funds make sense for professional investors too? After all, professional wealth managers are paid to manage their clients’ risk exposure and asset allocation. By allocating money to multi-asset funds, they would at least partly cede control to external managers.
This dilemma probably explains why roughly half of Europe’s professional investors, polled at an event run by PA‘s sister title Expert Investor in March, prefer to stay away from investing in multi-asset funds altogether (see chart).
Frank Reisbol, director of Carnegie Luxembourg, a private bank catering for wealthy Nordic investors, belongs to this category.
“Multi-asset funds have embedded asset allocation, making it difficult for us to control portfolio risk,” he says.
Multi-asset funds also do not fit in the philosophy of Rabobank in the Netherlands.
“We want to be in control of asset allocation ourselves,” explains Rishma Moennasing, a fund analyst at the bank. “And we want to fit in certain themes [such as robotics] into our asset allocation as well. Investing in multi-asset funds doesn’t help such an approach,” she adds.
Diversification benefits
But other investors do allocate large chunks of money to multi-asset funds, precisely because of their asset allocation benefits.
“We invest in multi-asset funds for diversification purposes,” says Grigorios Aggelidis, director at the German wealth manager Geneon Vermögensmanagement.
Alongside the actively managed funds that reflect Geneon’s own asset allocation, the company allocates 15-30% of client assets to multi-asset funds. What Aggelidis seeks to achieve with this approach, is to generate smoother returns in the long run by having his eggs in different baskets.
But it doesn’t always work in the short term. “It’s of course possible that our multi-asset managers all have the same asset allocation ideas as us at one point,” Aggelidis admits.
“This happened for example in the run-up to the French and Dutch elections in spring, when we reduced equity risk in our portfolios. But it then turned out all our multi-asset managers did the same thing.”
Volatility control
Attitudes towards multi-asset are as divergent between countries as they are between individual fund selectors.
While professional investors in the Nordic countries and the Netherlands do not tend to invest in multi-asset funds, usage is widespread in countries such as Italy, Germany and Spain. Investors in these countries also tend to be rather risk-averse, and that’s not a coincidence.
Moreover, the conservative nature of Spanish investors is precisely the reason that they invest in multi-asset funds, explains Alejandro Allona, a multi-asset fund analyst at Inversis Gestion in Madrid. It’s the only way to get them move up the risk ladder a little bit.
“Most Spanish investors are conservative, and have been moving from 100% fixed income to, say, a 20% allocation to multi-asset funds in recent years. Because they are conservative, they don’t want to invest in equity funds directly because they find the volatility too high,” he explains.
“If the equity exposure comes via a multi-asset fund, volatility will be lower than for the equity fund, even though they will still have the same total portfolio exposure to equities. But this set-up makes investing in equities more palatable for clients.”
