What’s the big marketing idea?

The growth in multi-asset portfolios shows no sign of slowing down as Investment Week reported last week with three more products coming to the market hot of the heels of the success, in asset-raising terms, of William Littlewood’s Artemis fund or J.P. Morgan’s move into the sector.

The question is, are multi-asset funds just this autumn’s big marketing idea following on from strategic bond and absolute return vehicles earlier in the year, or do they have a strong investment case?

Arguably, multi-asset funds are a rebranding of multi-manager or fund of funds from previous marketing cycles, that in themselves were a rebranding of broker funds from the 1980s and early 1990s.

Clearly, some current and planned multi-asset portfolios will use different fund structures, but the principle of an asset allocation vehicle for a client’s portfolio is the driving theme behind these products, and this is the reason for the wave of new launches.

Many client portfolios have historically been overly exposed to one asset class – usually UK equities – and a key lesson that must be learned from last year is the inherent risk from this positioning, even if it is in an asset the client feels they understand.

How many client portfolios are now overexposed to fixed interest assets in one form or another?

The reputation of the industry will not be rebuilt if every market cycle brings masses of investors who buy into an asset class at the top of a market.

One of the real values of the multi-asset fund is to ensure investors avoid this trap.

The asset management industry has been looking for a product to compete with the principle of with-profits since the beginning of the product’s demise in the late 1990s.

Investors always understood the concept of smoothed returns, even if they did not understand the underlying asset mix or that returns were bolstered by early surrenders.

The earlier versions of multi-asset (broker funds) offered the potential for more active asset allocation, when compared to the allocation of with-profits.

It is clear there is as strong justification for the launch of multi-asset fund as there was with absolute return and strategic bond vehicles, and the test will be the same as it always was – performance.

However, given where markets are currently at, advisers cannot sit back and wait for a three-year track record to develop because the investment cycle will have moved on and the choice of multi-asset in three years’ time will be different.

It is not just a question of performance because risk must always be considered.

Advisers need to be clear why they are buying the funds and which clients they are doing it on behalf of. It is not enough to simply select one fund and recommend it to a pool of clients.

One of the key lessons of absolute return funds is that they are not all the same – they largely have different strategies and different objectives and so cannot be advised on as a homogenous asset class.

The same can be said of multi-asset funds. Their arrival is to be welcomed and it is important advisers embrace these products as a core offering for their investors.