Multi-asset allocation funds are Germany’s flavour of the month

Multi-asset funds are absorbing large inflows from German investors, but fund of funds rivals say the model is not without its pitfalls.

‘When in doubt, delegate’. That is what many European investors are doing this year buying multiasset funds, giving managers the discretion to allocate between dif- ferent asset classes on their behalf.

Products to meet increasing demand have come, or are coming, from Alliance Bernstein, Lazard Asset Management, Pimco, Goldman Sachs Asset Management and DWS Investments.

Managers say the model relieves the stress on clients, felt most keenly during the financial crisis, to decide when and how much to feed to the various asset classes.

The model is also more liquid and transparent than the competing fund of funds structure, they say.

But funds of funds  sometimes called multimanagers reply the single manager model has its own drawbacks.

These include increased manager risk, too narrow a pool of talent to select from, and the potential danger of internal politics affecting allocation decisions.

Whether investors choose multi asset or multi manager, however, both sides of the debate agree it makes sense to give decision making power to professionals.

Achim Kussner, managing director and German country head of Schroders, says:

“We think multi-asset funds are a great solution for investors which would like to put the asset allocation decisions in safe hands.” Often investors cannot assess suitable diversification, or adjust their portfolios often enough to maximise returns, he adds.

Schroders has seen recent increasing interest in Germany for its Schroder STS Global Diversified Growth and its STS Schroder Global Dynamic Balanced funds. These products form part of a €38bn multi-asset programme Schroders runs with a team of 60.

The funds take a useful ‘middle path’ between multi- asset and multi-manager. Their managers can select between internal Schroders funds, externally managed portfolios, index funds and structured products.

Kussner cautions: “When choosing a product, investors should check what the asset manager means when putting the label ‘multi-asset’ on the product, as often these products only mix between equities and bonds.”

Christian Hille, co-head of portfolio management multi asset at DWS Investments, says allowing funds to move between asset classes is important, because no one major asset class from shares, debt, credit and high yield to commodities has given the best returns in more than one year since 2006.

“Buying and holding just one class is out of date as economic and financial cycles become shorter and more volatile. There is also extreme dispersion across, and within asset classes,” he says.

Jai Jacobs, portfolio manager at Lazard Asset Man- agement, says multi-asset is popular among investors because some who made gains in high volatility strategies from 2004 to 2007 saw them destroyed

“in a matter of weeks” in the crisis smoother performance “One of the main benefits [of multi-asset funds] is a smoother pattern of performance. The portfolio looks to move towards safety when conditions warrant, preserving years of compounded returns.

“Having the structure with clearly delineated responsibilities allows a very large team of investors over 30 in our case to collaborate and build a single portfolio representing the best thinking from many disciplines.”

Emanuele Ravano, managing director with Pimco in Europe, adds: “There are so many variables that are difficult to manage such as currency, liquidity and then the underlying markets, it makes sense to give that responsi- bility to a manager.”

Multi-asset has distinct benefits when it comes to emerging markets investing, too, says Morgan Harting, emerging markets multi-asset team leader at Alliance Bernstein.

“Emerging markets represent a considerable  and growing proportion of the world economy and offer significant return potential, however, traditional all-equity approaches are not best designed to minimise unwanted surprises.”

Lazard’s Jacobs says including bonds and currencies with far lower volatility than outright equity investment in EM exposure can “buffer the risk, decreasing the volatility and market risk considerably while still allowing the possibility to take advantage of the benefits inherent in the broader asset class”.

Lazard AM is planning an Ireland-domiciled version of its $500m multi-asset EM strategy, investing across: cash, equities, fixed income and interest rates, FX, and long and short in debt.


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