Has multi-asset reached a peak?
Multi-asset has enjoyed tremendous popularity over the past couple of years, with the number of new funds being launched skyrocketing from 150 in 2014 to 700 in 2015.
While recent inflows into mutual funds appear unabated, Philip Kalus, managing partner at fund research firm accelerando associates, suggests that supply of multi-asset strategies in Germany may have oversaturated the market. According to latest data presented by the German Investment Funds Association BVI, while equity funds continue to account for the biggest share of mutual fund assets, multiasset funds are gradually catching up, with a total of €221bn invested throughout August 2016.
This coincides with a number of new multi-asset strategies being launched in the region, ranging from classic balanced funds to those including alternative asset classes as well as long-short and derivative-based strategies. Driving forces behind the trend include a structural aversion to investing in fixed income, with multi-asset being seen by many, retail investors in particular, as ‘equities-light’.
But Kalus argues that both fund providers and selectors should employ a cautious approach to the multi-asset trend. “One could argue that multi-asset is the flagship discipline of asset management, requiring a very broad skillset of the fund manager, who has to be versatile in a multitude of asset classes. In the 1990s multi-asset strategies were known as global macro strategies and at the time were managed by a limited number of hedge fund managers, but all of the sudden everyone seems to have become a multi-asset expert, which makes fund selectors wonder, where has all this talent come from?”
‘RETURN OF THE LIVING DEAD’
“The demand for multi-asset has sharply increased in the aftermath of the 2008 crisis,” Kalus continues. “German investors were pretty much hands up and willing to ‘outsource’ asset allocation by investing in multi-asset funds and the balanced fund concept – a very large asset class in Germany in the mid 1990s, which was literally wiped out by the millennium stock market frenzy – was suddenly back. We sometimes described return of balanced concepts as the ‘return of the living dead’,” he jokes.
“While multi-asset funds continue to remain popular among retail investors, there has been a significant shift away from the strategy among wholesale and institutional investors; after all they are being paid to make their own asset allocation decisions.
“A lot of institutional assets are classified as multi-asset but technically they are individual manager buckets grouped into one fund under a KVG (Kapitalverwaltungsgesllschaften). Investing in multi-asset funds can make asset allocation and liability management for institutional investors incredibly complex,” he stresses.
The institutional shift away from multi-asset is not directly visible in the monthly BVI data, which focus on the sector allocation of mutual funds, while the sector allocation of Spezialfonds, the vehicle of choice for German institutional investors, is not disclosed. Year to date (as of August 2016), Spezialfonds reported €59.6bn in net new inflows, compared to €7.5bn in mutual funds. In total, €1.4trn of German fund assets are invested in Spezialfonds, compared to €900bn in mutual funds.
While the exact scope of the decline in demand among institutional investors remains unclear, Kalus stresses another key trend: despite the significant rise of multi-asset products on offer, actual inflows have been extremely concentrated among four to five major providers.
“It is now clear that there are way too many products on offer, consolidation at the product level appears unavoidable,” he argues. Despite his cautious note, Kalus acknowledges that multi-asset can fulfill a useful role in the retail sector. “As part of an advisory service to retail investors, multi-asset funds can be very useful. However, we struggle to see the growth potential of multi-asset funds, which many fund houses hope for, on the wholesale and institutional sides since that is after all where the big money lies,” he concludes.