Why are IFAs recommending multi asset funds?
This is believed to be in response to recent market volatility and is up from 36% at the time of the last Baring Asset Management Investment Barometer.
It’s the highest since IFAs were first asked about their recommendations for multi asset funds back in the second quarter of 2011.
The latest survey found that IFA favourability towards multi asset products remains very high; 73% of respondents said they are currently either ‘very’ or ‘quite’ favourable towards multi asset growth products and either ‘very’ or ‘quite’ favourable (68%) towards multi asset income products.
This compares to 57% who said in Q1 2014 they were either ‘very’ or ‘quite’ favourable towards multi asset products generally and 67% in Q1 2013.[tweet_box]More IFAs are recommending multi asset investment funds, but these might not be the best option.[/tweet_box]
So why are these funds becoming so popular?
A multi asset fund invests in a range of investment asset classes – typically equities, bonds, cash and commercial property.
They make life easy for investors (and advisers), because it is the fund manager who makes important decisions about asset allocation, deciding on how much to invest in each investment type as market conditions change.
Except multi asset funds are perhaps not the utopia they might appear to be to the casual observer.
In our experience, multi asset funds tend to quite closely track a benchmark.
This means the fund manager rarely makes big tactical decisions when market conditions change. Over time, the underlying asset allocation of most multi asset funds tends to remain fairly consistent.
And then there is cost to consider.
Multi asset funds tend to be more expensive than their single asset fund alternatives.
Investors pay more for the perceived expertise of a fund manager to control the asset allocation of the fund and, therefore, the risk being taken.
Here at Informed Choice, we advocate the use of single asset funds.
These allow us to populate an asset allocation model which is designed to meet the specific needs of an individual investor.
It means we can select funds which are the most suitable in a particular asset class; for example, we can pick the best suited UK Equity fund, rather than choose a single fund manager who is expected to have expertise across different investment types.
Using single asset funds also means we can more effectively control risk.
We meet with every single one of our clients at least once a year to rebalance their portfolios and keep their investments allocating appropriately, to meet their needs rather than the needs of a general group of investors in a multi asset fund.
Multi asset funds certainly have their place; they can be used effectively for smaller investment portfolios where a more bespoke approach would not be cost effective.
But we would be surprised if nearly half of all investors working with an IFA should genuinely be invested in multi asset funds, and whether this really best suits their financial goals.