The average multi-asset fund has an annualised return of 5% over the past 15 years in comparison to a less than 1% annualised return for cash, according to data from Morningstar.
A cash return of less than 1% means wealth is decreasing over time, as inflation averaged 3%. While cash has not produced a negative return over the last 15 years, it has only outperformed inflation two of the past 15 years. The average multi-asset fund had negative returns in 2011, 2018 and 2022, but have significantly outperformed inflation every other year.
In 2022 however, the average multi-asset fund lost almost 10%, while cash stayed positive.
Simon Evan-Cook, fund manager of VT Downing Fox Funds, said: “2022 has happened now. It was horrible if you were in a bond-heavy fund (and remember, some multi-asset managers completely avoided them), but that’s behind us.
“Just as cash rates have gone up (and there’s nothing – to stop a multi-asset manager holding some cash), bond yields, and therefore their prospective returns have also risen considerably. This forms a decent foundation from which to seek higher returns from the growthier parts of the portfolio.”
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Currently, high interest rates make cash an appealing option for some investors as it beats out inflation. The question remains if the dynamic is to stay.
“Our answer to any question that involves predicting the future is “we don’t know”. But we do know that you can find a savings account paying around 5%, while the last UK inflation print was 4%, so it looks okay as things stand,” Evan-Cook said.
“But can interest rates stay at this level? For a bank to pay interest at 5%, it needs to lend it out at a higher rate than that. Given the high level of debt many companies and working people already have (through mortgages if nothing else), will they really be rushing to borrow even more at, say, 8% interest?”
While cash returns have consistency, multi-asset returns make jumps. At the end of October 2023, cash had returned near 4% year-to-date, while the average multi-asset fund had a negative return. However, by the end of the year two months later, the average multi-asset fund had rallied to an almost 7% return, while cash sat just below 5%.
Evan-Cook believes holding equities has potential for “compelling future returns”. However, he warns that mega caps, such as the Magnificent Seven, could “throw another spanner in the works for many multi-asset portfolios”.
“Given the high exposure that the cheapest global or US passive funds/ETFs now have to these mega caps, and the large weighting many multi-asset strategies now have to passives, this could be the thing that eggs the face of your recommendation to go multi-asset over cash,” Evan-Cook said.
“Consider the big risks that lie beneath each multi-asset product you’re holding and, if you hold several, what they sum up to. Just like bonds before 2022, trackers have worked brilliantly for a long time. But they’re mega-cap heavy, many products are stuffed full of them, and nothing works brilliantly forever.”
