Multi Asset Funds Explained

Having a diversified portfolio allows you to balance your risk by spreading your investments across a range of different assets classes. One way you can do this is by looking at Multi-Asset funds. Multi-Asset funds are made up of a number of asset classes, including equities, fixed income, commodities, and currencies. The combination of some of these asset classes into a single investment portfolio is known as Multi-Asset investing. The weighting of the portfolios, meaning the percentage a holding has, is not specific and can vary from portfolio to portfolio, offering the opportunity to access different combinations of risk and return. They mitigate some of the risk by diversifying across the varying asset classes. This is achieved by the fund holding a mixture of asset classes, which are generally negatively correlated to each other. 

Multi-Asset funds objectives can be risk orientated and differing funds can be structured to contain a varying asset weighting, to create a blend of appropriate funds for different risk appetites. 

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What is a Multi-Asset Fund? 

As mentioned, Multi-Asset funds are investment products that offer exposure to a wide range of asset classes including; equities, fixed income, commodities, and currencies. These funds provide diversification benefits to investors by allowing them to spread their investments across multiple asset classes, reducing the risk of loss due to market volatility. Multi-Asset funds are managed by professional investment managers who are responsible for selecting the assets that go into the fund. The managers use a variety of strategies to determine the asset allocation of the fund, including strategic asset allocation, tactical asset allocation, and dynamic asset allocation. 

Strategic asset allocation is a long-term approach to asset allocation, that involves selecting a mix of assets based on their expected returns and risk characteristics. The asset allocation is based on the investor's goals and risk tolerance and is typically adjusted  periodically. 

Tactical asset allocation is a short-term approach to asset allocation, that involves adjusting the asset mix based on market conditions. The manager may increase exposure to equities when they believe the market is undervalued or decrease exposure to equities when they believe the market is overvalued. 

Dynamic asset allocation is a combination of strategic and tactical asset allocation. The manager selects a strategic asset allocation but makes periodic adjustments based on market conditions.

How do Multi-Asset Funds work? 

Multi-Asset funds are typically classified into three categories based on their risk profile: conservative, moderate, and aggressive. 

Conservative Multi-Asset funds are designed for investors who are risk-averse and have a short-term investment horizon. These funds typically have a higher allocation to fixed income assets and a lower allocation to equities. 

Moderate Multi-Asset funds are designed for investors who are willing to take on some risk for higher returns. These funds typically have a balanced allocation between fixed income and equities. 

Aggressive Multi-Asset funds are designed for investors who are willing to take on higher risk for the potential of higher returns. These funds typically have a higher allocation to equities and a lower allocation to fixed income.

Are Multi-Asset Funds a good investment? 

Multi-Asset funds offer several advantages to investors. One of the key advantages is diversification. By investing in multiple asset classes, investors can spread their risk and reduce the impact of market volatility on their portfolio. Multi-Asset funds also offer convenience and simplicity. Rather than having to manage multiple investments in different asset classes, investors can invest in a single fund that provides exposure to all of the asset classes they are interested in. In addition, Multi-Asset funds offer professional management.

The investment managers who manage these funds have expertise in selecting and managing investments across multiple asset classes. They also have access to research and analysis that individual investors may not have access to. 

However. Multi-Asset funds do have some potential drawbacks. One of these is fees. Multi-Asset funds typically charge higher fees than single-asset class funds, due to the additional management required to manage the portfolio across multiple asset classes. In addition, Multi-Asset funds may not provide as much flexibility as investing directly in individual assets. Investors may not be able to select specific investments within the asset classes included in the fund, which may limit their ability to customise their portfolio to their specific investment goals and risk tolerance. Another potential drawback is performance. Multi-Asset funds are subject to market fluctuations and may not always perform as well as the individual asset classes they invest in. However, the diversification benefits of Multi-Asset funds may help to mitigate this risk.

Why invest in Multi-Asset Funds? 

Investing in a Multi-Asset fund offers the investor access to a diversified portfolio in the hands of a professional manager. The portfolio by nature gives the investor an element of discretionary exposure due to the ability of the fund manager to change the mix of assets in the fund. 

Overall, Multi-Asset funds can be a valuable investment option for investors who are looking for diversification and professional management. However, investors should carefully consider the fees, performance, and flexibility of these funds before investing. They should also consider their investment goals and risk tolerance to determine which type of Multi-Asset fund is right for them. 

If you are considering in investing in a Multi-Asset fund, then you should speak to your financial adviser, or give us a call to see how we can assist you and talk you through whether these types of funds would be suitable to you and your unique circumstances. 

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Please note: the value of investments can go down as well as up, you may not get back what you originally invested.