Mr Knight highlights when compared to model portfolios a multi-asset fund can be more active as it can have futures or trackers implemented in real time to react to market conditions or political changes.
He notes that funds have been able to make quick changes and hedge their currency exposure in the current market volatility produced by Brexit.
Mr Knight adds: “This isn’t possible through other structures as listed above [as] a model portfolio requires an adviser to seek client permissions if they didn’t already have client authorization, while an outsourced model portfolio operates on a quarterly rebalance.”
Mr Deacon says: “By understanding the correlations between asset classes as markets move through economic cycles, multi-asset managers can manage volatility and reposition a portfolio as conditions dictate.”
He adds: “Enabling a provider to utilise its risk budget across asset classes allows for much more dynamic portfolio management, with the ability to both produce positive returns and protect capital on the downside.”
Cheap money
Didier-Saint Georges, managing director at Carmignac, points out multi-asset investing was a way to have maximum freedom to pick the asset classes with the highest Beta with all financial assets correlated by their common dependence to low interest rates.
But he believes, going forward, multi-asset funds will need to change their investment styles as correlations between asset classes decrease.
He says: “Managers will need to use their flexibility to optimise the risk-return measure of their fund [which] will require a different investment approach and a much stronger focus on risk management than needed in the last 10 years.”
Mr Georges adds: “In the past ten years, aggressive multi-strategy funds could deliver strong performance while being suitable for retail investors, because central banks were basically underwriting the market risks [and] many retail investors felt able to take in their stride the 'black box' nature of some of these complex funds as long as the performance justified it.”
He warns that such “levels of complacency” now exposes them to a much more challenging environment.
“Savers will demand genuine transparency from their fund manager, so as to distinguish highly speculative funds from diversified risk-conscious multi-strategy funds,” adds Mr Georges.
saloni.sardana@ft.com
