Demand for multi-asset funds continues to grow at a time when investors increasingly realise the importance of diversifying their return streams away from traditional asset classes.
In a recent Schroders multi-asset survey*, two-thirds of survey respondents said that they were currently using multi-asset funds, with 69 per cent citing their ability to deliver real returns with lower volatility than global equities as the main objective.
Moreover, since 2010, in the UK assets in Diversified Growth Funds (another name for multi-asset funds) have grown almost fivefold from GBP25 billion to GBP117 billion.
And with the macro environment set to remain a challenge, the ability to provide multi-asset solutions to institutional investors could become a key differentiator.
It was against this backdrop that Misys, a leading financial software company, recently hosted a webinar entitled “Unlocking the true potential of multi-asset investing”, on the back of which an exclusive white paper has been produced.
Twenty years ago, an all-bond portfolio had an expected return of 7.5 per cent for 6 per cent risk. Today, to achieve that same level of expected returns, asset managers need to diversify into a far wider array of asset classes. Not only does this bring additional portfolio management complexity, it manifestly increases the amount of risk. As such, having the right systems in place to support greater asset class diversification that allow managers to pivot their investment strategies, and extend the instrument coverage of those strategies, is a must-have.
The Misys white paper features detailed insights and market views from Malcolm Jones, Investment Director, Absolute Return and Multi-Asset Investing, Standard Life Investments; Olivier Blin (pictured), Senior Vice President, Cross-Asset Solutions Team, Unigestion; Brian R Wimmer, Senior investment Strategist, Vanguard and Jason Whitaker, Buy-side Strategist, Misys.
Increasingly, traditional and alternative fund managers are converging in such a way that the concept of running single asset portfolios is fast diminishing. In order to succeed and have the confidence to trade multi-asset portfolios with differing liquidity and risk profiles, fund managers are re-assessing the technology capabilities of their operating models.
Optimising the fund strategy’s risk-adjusted returns with sophisticated hedging techniques requires real-time automated workflows processes, not Excel spreadsheets. In turn, this can help drive trading insights that might previously not have been possible.
Just how hard is it to extend into new asset classes? What are the main operational challenges? What are the typical techniques used to hedge and reduce risk? And more importantly, what are the benefits? Is this the end of beta and if so what are the implications? These questions, and more, were considered.
One theme that emerged was the importance of alternatives in multi-asset investing, both as an alpha generator and a way to hedge against downside risk using derivatives. During the webinar, some 46% of listeners voted for alternatives, with 23% voting for ETFs, 15% for emerging markets and 8% for fixed income, when asked what asset class they needed to invest in to support their firms’ growth plans over the next 12 to 18 months.
Key to the ability for any fund manager to diversify into new asset classes is the ability to properly analyse investments in terms of individual performance and risk, and understand how these metrics impact the wider portfolio. “System agility is important as one expands into more exotic asset classes,” said Blin. “They need to give you an accurate picture and appropriate representation of your risk exposures. Otherwise, you won’t be able to properly manage a multi-asset portfolio in today’s environment.”