Turmoil in global financial markets is making multi-sector fund more attractive for investors who are no longer willing to risk putting all their eggs in one basket, according to research by Standard Poor’s.
Multi-sector funds, which employ specialists to invest across several different asset classes, have long been a mainstay for retail investors looking for a diversified and low-cost way to make money.
But since the start of the global financial crisis (GFC), professional and more sophisticated investors is only likely to grow, according to SP Fund Services analyst Andrew Yap.
‘There is an increasing awareness and use of these funds by other larger and more sophisticated investors,’ he said in the report, published Friday.
The research found that growing volatility in global financial markets had made it harder for investors to choose between active fund managers, and so made multi-sector funds more attractive as they bring together several specialists in one product.
Increased scrutiny from regulators is also forcing fund managers to be more mindful of their investments as the advice they give to clients – favoring multi-sector funds that employ specialists in a particular asset classes.
For fund managers, the growing interest from sophisticated investors also means thaey must be more specific in defining what returns they offer and the associated risks, Mr. Yap said.
If there’s a standard formula for a professionally designed, diversified investment portfolio, it would be ‘diversification’ + ‘balanced fund’. It’s the golden rule of successful investing. A balanced fund with an intricately planned allocation across the main asset classes will more likely reduce the volatility of returns. As for ‘diversification’, multi-asset investing has become the pillar of many an IFA. A diversified portfolio is definitely one of the most important parts of a sound investment advice.
The concept of multi-asset investment is simple. If one asset class goes down, another might be making up for its downturn, thus, covering your loss for the diminishing asset class. This investing strategy will benefit investors in the long term, especially those with substantial sums to invest.
Though the recent financial crisis made an exemption, when all asset classes appeared to correlate with each other, making investors uncertain about their portfolios, still, experts believes that having diversified assets has higher returns in the long term.
To protect multi-asset funds from downside risk, some managers are even developing hedging strategies and IFAs are also dealing with the RDR. Investors are sorting their clients according to how much time they can allocate to each one. This situation exemplifies the great advantage of multi-asset investing as it is designed to accommodate the different type of risk each client can tolerate, and therefore become helpful in portfolio construction for them. In a short period of time, IFAs might find multi-asset investing in ready-made funds, which are made up of bonds, equities and other assets could be more helpful in years to come.
