What Are Multi Asset Funds?

31 March 2021

When we are discussing investments or pensions with our clients there are a couple of main factors we must take into account. One is the level of investment risk with which the client is comfortable, another is the level of return they are seeking on their money, and importantly we must consider the length of time the money will remain invested. Obviously, a pension plan which may be in place for 30 years can afford to have a higher risk profile than an investment bond that may have a shorter investment timeframe.

These factors are balanced against each other to find an appropriate level of investment risk, and then also an appropriate asset mix to suit that level of risk. An asset mix is the composition of all assets held within a fund or portfolio. There are three major asset classes: equities, fixed income and cash (or cash equivalents), outside of this are ‘alternatives’ including property.

Many investment funds will have a particular asset in which they will invest, for example, a European Equities fund or a Corporate Bond fund. However, one of the most important features of any pension or investment portfolio is to maintain as much diversification as possible. This includes diversification in terms of the asset classes used, the geographical regions in which these are invested and also with regard to the sectors invested in e.g. Financials, Technologies, Healthcare etc. Diversification can be achieved by spreading your investment across a variety of different funds. One disadvantage of this, however, is that it is easy to lose sight and control of the investment risk that is being taken within the different funds.

Insurance companies simplified this task for investors many years ago by introducing multi-asset funds, which invest in many different asset classes within the same fund. The original multi asset funds were normally designed with prescribed minimum and maximum percentages of each asset type they could hold, for instance, the fund manager may have to ensure that between 40% and 70% of the fund would be invested in equities, or no more than 10% in Bonds etc. They were often set up with an eye on the overall risk profile of the fund, usually indicated in the name of the fund, such as Balanced, Cautious or Adventurous.

One issue facing these older funds was that they could experience higher volatility than intended due to the fact that they had to maintain these percentages of exposure to certain assets regardless of market conditions, and this was often prioritised over remaining within their nominated risk profile.

Investment and Pension providers have addressed this over recent years with the introduction of risk-controlled multi-asset funds. Usually having a number in their title indicating their intended rating on a risk scale of 0-7, these funds are less constrained in terms of the investment sectors, assets and strategies they can use. This means the fund managers have more freedom to invest with a clear focus on the investment and risk objectives of each fund. The main aim, therefore, is to keep the risk profile of the fund consistent while providing excellent asset class diversification.

If you would like to know more about Multi Asset Funds we would recommend reaching out to a local financial advisor who can best guide you on this. They will take into account details such as the amount of risk you would like to take, as well as your overall financial goals, in order to provide you with the best advice in terms of suitable investment options.

Sean Sweeney, QFA RPA is a Qualified Financial Advisor and Retirement Planning Advisor. You can contact him through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on sean@jfl.ie

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