For investor and adviser alike, the investment space is jam packed with fund names and labels and descriptions and it is fair to say that this creates potential confusion and misinterpretation.
A good example of this is the phrase multi-asset fund. Several years ago, I received a call from a financial journalist who asked me for comment on a new multi-asset fund being launched. I was intrigued by the terminology and during our conversation I ventured to suggest that any investment-oriented IFA would always want a range of assets within a portfolio and constituent fund selected for inclusion in a client portfolio.
No need to highlight the old and well proven adage of ‘eggs in different baskets’ I thought. The journalist seemed rather nonplussed by my comment and intimated that I was missing the point. We concluded the conversation amicably but still at variance in our opinion of what a multi-asset fund was and why indeed it was a sufficiently different investment proposition coming to market to merit attention.
Time has passed and the phrase multi-asset is now common parlance among IFAs. Diversification by investing across a selection of equities, bonds, property, private equity, hedge funds commodities is the essence of the approach that is promoted by multi-asset fund marketing as being the way to invest, handle the shocks and scares of an increasingly volatile market while managing to deliver returns in different economic cycles and environments.
This will only work and be successful if the balance of assets within the fund is well researched and constructed but there has to be more to it than that, for surely that is what a well-planned and researched investment portfolio should do anyway as a consequence of smart asset allocation and fund selection.
The question we should consider is: “Have multi-asset funds added value through adding diversification to the portfolio planning that advisers conduct with and for their clients?” I suspect that the appeal of multi-asset funds is part and parcel of the move among many IFA firms to hand over the investment decisions to a third party, in an attempt to mitigate risk surrounding their advice to their clients and hand the responsibility to that third party. This is fraught with potential problems. I attended a recent prestigious and always useful industry event in London and at one of the workshops - on multi-asset funds incidentally - and got into conversation with another delegate IFA.
I asked him about his approach to fund selection for client portfolios and he quickly replied that he does not do it anymore and uses model portfolios produced by a third party. My next question was why did he take the step to stop fund selecting and hand it over to this third party? He looked at me and replied that it was a simple decision - he had decided he no longer wanted the risk inherent in giving investment advice on fund selection and had passed the risk across to the model portfolio firm.
