Fortune favours the bold

Cautious multi-asset funds have been hit by outflows so far this year, says Square Mile Research’s Charlie McCann, while investors opting for riskier options are sitting pretty

Charlie McCann, Square Mile
Charlie McCann


The bulk of multi-asset funds are situated in the Investment Association (IA) Mixed Investment (0-35% Shares, 20-60% and 40-85%), Flexible Investment and Volatility Managed sectors, with IA Targeted Absolute Return also containing some more traditional multi-asset offerings.

The six sectors represent around £263bn of assets, as at end of June, or 22% of total IA assets under management (AUM). The 40-85% is the largest multi-asset market at £82.4bn, while the 0-35% is the smallest at £10bn.

The majority of these sectors were subject to outflows over the past 12 months (to end of June), with the mixed investment 40-85% and volatility managed categories bucking that trend. The 0-35%, 20-60% and targeted absolute return markets in particular were hit with significant outflows over the period. In the more defensive areas we’ve seen investors grow impatient as the funds have not offered the level of protection they would have expected during a downturn.

See also: ‘Not a time for major calls’: Six multi-asset managers explain their Q4 positioning

Money market funds have been among the biggest beneficiaries of investors switching out of multi-asset portfolios, thanks to the relative security of returns that have risen on the back of rising interest rates.

A consistent theme we have observed is the flow of money towards passive and low-cost solutions, many of which are risk managed. This is reflected in the strong inflows into the volatility managed sector over the past 12 months, which is home to many of these funds.

However, the largest low-cost multi-asset range remains Vanguard LifeStrategy. These funds are categorised in the mixed investment sectors, with the largest two funds in the range falling into the 40-85% market and making up around 28% of its AUM.

Other household offerings including L&G’s Multi-Index range (£7bn AUM) and HSBC’s Global Strategy (£6.5bn) also continue to grow assets, but find themselves a long way behind Vanguard in terms of market share. These three ranges have all been subject to positive flows in the past three years as investors continue to favour low-cost solutions.

To read the full article by the Square Mile investment research analyst, visit the September edition of Portfolio Adviser Magazine

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