Multi-asset funds are designed to make life easier for investors. They claim to offer a one-stop ‘mini wallet’ so investors don’t have to build one themselves.
The idea is that instead of struggling with the complexity of choosing a range of funds, stocks, bonds, and other assets, investors can simply pick one. The fund manager is responsible for designing and maintaining a well-balanced portfolio so that the investor can sit back and relax – and hopefully wait for the returns to arrive.
But opting for a multi-asset fund always leaves investors with a headache: how to choose one. After all, there are around 700 to choose from, which can leave investors confused. Additionally, not all multi-asset funds are created equal. Pick the right one and you might have found a hassle-free way to grow your wealth for the long haul. Pick the wrong one and you risk taking too much or too little risk.
First in class: Multi-asset funds claim to offer a one-stop-shop ‘mini-portfolio’ so investors don’t have to create one themselves
HOW FUNDS PERFORM THROUGH THICKNESS AND THIN
Multi-asset funds are designed to offer the perfect mix of performing investments in all market conditions. They will contain investments that perform when the economy is growing, others that perform better when it is running out of steam. This way there should always be something in the portfolio that is generating profit.
As Dzmitry Lipski, head of fund research at wealth manager Interactive Investor, explains: “When an asset class is struggling, other parts of the portfolio can do the heavy lifting.
However, since multi-asset funds provide balance and protection against falling financial markets, they will never perform best when the market picks up.
If you go for a multi-asset fund, be sure to pick one that matches your appetite for investment risk. Some take more risk in the hope of being rewarded with higher returns. Others are content to be a little more cautious, even if it means accepting a lower return.
You may be able to determine the risk profile of a multi-asset fund just by looking at its name. Many will contain the word “prudent,” “balanced” or “adventurous” in their name, which refers to the level of risk they take.
However, other funds will require a bit more digging.
In general, the higher the ratio of stocks – or stocks – to bonds in a fund, the riskier it is. This is because companies tend to rise and fall in value with the health of the economy, while bonds are more likely to pay stable income, regardless of the performance of the economy. So as a general rule, if you want to take more risk, go for one with a higher proportion of stocks to bonds, and if you prefer to be more cautious, choose one with a lower proportion of stocks. .
WHY THE CHEAPEST FUND ISN’T ALWAYS THE BEST
The cheaper a multi-asset fund, the more you will be able to maintain your returns. But you might not want to go for the cheapest if it isn’t the best fund for you.
Darius McDermott, Managing Director of Chelsea Financial Services, says: “Cost is a big factor, but we have to stress that the cheapest isn’t always the best – it’s performance after fees that matters most.
He adds that multi-asset funds tend to be more expensive than funds that invest in a single industry because you are paying for someone to select the investments – and organize them in a perfect combination.
Some multi-asset funds cut costs by creating a portfolio of cheap passive funds, which automatically track an index rather than relying on an expert – and more expensive – fund manager to decide what to invest in.
The Vanguard LifeStrategy line is the “ultimate globally diverse one-stop-shop”. This is what Lipski says of Interactive Investor, who notes that with an annual fee of 0.22 percent, this range is one of the cheapest in the market. The LifeStrategy range includes five multi-asset funds, each with a different mix of stocks and bonds. Investors can choose the right mix for them based on their risk appetite.
Lipski also likes the BMO Sustainable Universal MAP, a range of five multi-asset funds for different investor risk profiles. The funds are designed to avoid businesses with harmful or unsustainable practices and focus on those that are making a positive difference. “With a total annual charge of only 0.35% and global diversification, this range of funds represent an ideal way for beginning investors to invest responsibly,” he said.
McDermott likes Fidelity’s MultiAsset Allocator line, which has an annual cost of 0.2% after a recent price drop of 0.25%. There are five funds to choose from based on risk appetite, and they’re built from passive funds to keep costs down.
In addition to multi-asset funds, there are also investment companies with a multi-asset vocation.
Unlike funds, investment trusts are companies whose shares are bought and sold on the stock exchange. Investment trusts can borrow money to buy assets, which means they can be riskier than funds, but also have a chance to outperform them.
James Carthew, of fund data specialist QuotedData, likes three investment trusts with multi-asset portfolios: RIT Capital Partners, Personal Assets and Ruffer Investment Company.
RIT Capital Partners is the investment vehicle for the family interests of Lord Rothschild. An investment of £ 1,000 three years ago would now be worth £ 1,259 and its total annual charge is 0.66%.
Personal assets turned £ 1,000 into £ 1,254 over the same period and cost 0.73% per annum. It aims to increase wealth while protecting investor money when markets go through turbulence. Ruffer turned £ 1,000 into £ 1,272 over three years. It aims to keep volatility low in all markets and has a total annual charge of 1.08 percent.
Laith Khalaf, financial analyst at wealth manager AJ Bell, also notes Ruffer and Personal Assets Trust. “Ruffer recently ruffled some feathers by investing a small portion of his wallet in Bitcoin and making a huge profit within a few months,” he says. “But short-term gains are not normally the goal of this fund, and managers choose their portfolios carefully. They aim to avoid any decline in value over a 12-month period, to increase investor capital and to provide a long-term anti-inflationary return. ‘
To emphasize sustainability, Khalaf mentions a new trust: Schroder BSC Social Impact. “This is a relatively new and fairly small fund that aims for above-inflation returns from investments designed to have a positive benefit for the company,” he adds. “We would like to see him grow over time. “
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