In the liquid alternative multi-asset sub -sector the argument that special skills are employed is holding less water these days. Fund buyers acquire these funds based on certain performance and risk targets – if these targets are not met investors will not hesitate to switch to less expensive alternatives.
Cheaper, more innovative strategies have started to spread within the multi-asset space. Examples include smart-beta multi-asset funds, possibly the next frontier in multi-asset investing. Competition will only start to really speed up in three to four years’ time when products launched today have a longer track record.
Multi-asset funds also face competition from funds of passive funds. In the past three to four years assets have grown to just shy of €20bn by mid-2016. Those multi-asset managers that do not recognise the need for acceptable charges – some are charging unjustifiable performance fees, applied to both rising and falling markets – are in danger of being marginalised.
It is true that when a particular fund or sector has been in the limelight for several years it is not unusual for it to go through a rough patch but overall the asset class has failed its first real test. While a single year is not enough to truly judge performance, and performance alone is not the sole criterion for judging a multi-asset fund, it does serve as an indicator.
Clearly, a number of these funds are highly correlated to the stock market – some by up to 90 per cent - which arguably defeats their purpose.
That said, the prospect for the multi-asset fund industry is generally positive. Demand will continue – defined contribution schemes are perceived as potential investors – and strategies will shift in and out of fashion. We are currently seeing a shift in sentiment away from long-only, cautious funds to long-short multi-strategy funds. Another year may see multi-asset back at the top of their game with a new generation of blockbuster funds that charge less, have a robust size-management policy in place and consistently deliver on their targets and risk profile. It is not too much to ask.
Barbara Wall is managing director of Cerulli Associates Europe
Key points
multi-asset funds have enjoyed record-level inflows in recent years.
With volatility likely to continue into 2017 now is a is an opportune time to take a step back and evaluate the merits of the asset class.
Multi-asset funds also face competition from funds of passive funds.
