Far be it from me to suggest that all he had done was change the nature of the risk rather then removing it - some interesting conversations may well arise in the future about where the buck stops for investment advice to clients. As multi-asset funds gather popularity and
momentum the contribution that exchange-traded funds are likely to make to the content of multi-asset funds is likely to escalate rapidly - low cost, replication, but with varying levels of risk attached to the component assets making up the fund. For example, the attention that the current regulator is showing for use of ETFs in the retail space is only likely to increase in the coming months and the new Financial Conduct Authority - is unlikely to be any less interested in this area of advice - the clue is in the name and focus on the word conduct.
Trivia
We all are painfully aware that markets have been extremely challenging for investors over the last three years and it is interesting to see where performance if any has come from funds other than the much vaunted multi-asset offerings.
Question: What was the best performing sector over the last three years? Take a moment to reflect before moving on.
Answer: UK Smaller Companies - with a return of 115.5 per cent followed by Technology and Telecoms delivering 104.3 per cent.
Surprised - you may well be. It becomes even more interesting when you move the time frame out to five years - everything changes with top sector Technology and Telecoms returning 64.8 per cent and followed closely by Asia Pacific ex Japan posting 57.5 per cent.
So where do the multi-asset funds fit into the picture of offering any better diversification while delivering enhanced investment returns? If we are to believe that multi-asset offers extra levels of diversification, then it would not be unreasonable to expect higher reward but with lower volatility. I would also expect to see multi-asset funds showing significantly lower standard deviation numbers but I see no evidence for this.
There is a genuine problem here in making comparisons between multi-asset funds and anything else because of the range of the holdings within the funds. However we can make some sense of the market if we look at the Mixed Investment 40 per cent to 85 per cent shares ‘sector’ and how these multi-asset funds have performed.
For those of you reading and thinking that this smacks of Balanced Managed under another name you are dead right, so do not get hung up on the label. Over three years, the sector has returned 48.2 per cent and over five years 12.9 per cent - so on both timeframes the multi-asset story is less than convincing overall despite the seemingly more diversified approach offered by the funds. Even when you drill down and look at individual funds the argument still lacks depth or conviction for me - CF Cygnus certainly showed the way to other multi-asset funds with a return of 82.2 per cent over the three years but is less impressive over five years at 26.6 per cent return. When compared with the returns made to a portfolio from such well run funds like Marlborough Special Situations, with a performance of 152.6 per cent over three years and 44.8 per cent over the more important five-year horizon, the case for individual fund selection is still in my opinion overwhelming and should not be based upon a label but rather the fundamentals of the fund track record.
