Both retail and institutional investors globally are increasingly turning to multi-asset class funds to combat low yields and rising volatility, according to a new analysis by UK-based Create Research.
The Create study, which distils the findings of its annual global investor reports over 2013-15, says all of the four investor groups (retail, high net worth, defined contribution and defined benefit investors) it surveys showed a growing appetite for mult-asset solutions.
“Between 2013 and 2015, the percentage of all four investor groups that indicated they would likely use multi-asset class funds in their asset allocation in the subsequent three years recorded notable increases,” the report says.
The Create analysis, titled ‘Asset allocation: survival of the fleetest’, found retail investors were the most interested in multi-asset funds with 63 per cent in the 2015 survey saying they would consider using the products compared to 51 per cent in the 2013 study.
Meanwhile, the remaining three investor groups saw interest in multi-asset funds increase climb from about 40 per cent each in 2013 to well over 50 per cent in the latest Create survey.
Like traditional balanced funds, multi-asset products hand diversification powers to a single manager. However, the Create survey says multi-asset funds have considerably more investment discretion than their historical precedents.
“Multi-asset class funds deploy a broad palette of assets: equities at one end, merger arbitrage at the other, and a wide spectrum of credit in between, including direct lending, distressed assets, high-yield and investment-grade bonds. Some of them take outsized equity exposures if they sense intrinsic value. They target under-priced, under researched and unloved assets. Freed from the tyranny of benchmarks, their main appeal is their emphasis on absolute returns,” the report says.
“At a time when asset prices are disconnected from their value drivers, multi-asset class funds offer go-anywhere-anytime type solutions. In market conditions where opportunities appear and vanish fast, they offer diversification with a pragmatic bent that is consistent with the art of the possible.”
A handful of firms in New Zealand – including AMP Capital, Nikko Asset Management and Russell Investments – offer multi-asset funds, although the growth here has been slow to date.
According to the Create study, the rise of multi-asset funds can be attributed to the wider search for “outcome-oriented” solutions as investors look to manage post GFC “market volatility and ultra-low interest rates”.
The report says after years of loose monetary policy worldwide, older investors, particularly, are ditching conventional risk reduction strategies centred on increasing allocation to fixed income.
“Prudence has long held that retirees or near-retirees should be overweight in bonds and not take risks with their retirement nest eggs. However, they are forced to act contrarian in this age of near-zero yields, where assets are so mispriced and their risks so obscure…,” the Create study says.
“As investors get older, they are becoming wiser as well. The feast and famine mentality of the past is giving way to pragmatism that seeks to orient asset allocation to specific end goals, using approaches that have the best chance of delivering them.”