Analysis of Lipper fund flow data by ING Investment Management suggests both that there has been growing interest among investors for multi-asset funds in recent years, but also that investors need to beware differences between the different funds on offer.
Amid the continuing low interest rate environment, it is clear that investors have been seeking solutions that provide total returns, typically “cash + x%”, ING IM says. The Lipper data points to inflows of some €46bn to asset allocation funds in the first seven months of 2014, which in turn came off inflows of some €62bn through 2013.
However, what investors should look to is the relative levels of risk they are buying into when considering these sorts of multiasset total return strategies, ING IM adds.
“While the return objectives of all such funds are set well above government bond yields, it is essential take into account the riskiness of these funds, typically expressed as overall target volatility. Next to this, while the ability of multi-asset fund managers to digest and react to changing market environment is at the core of the multi-asset proposition, understanding the degree of flexibility and robustness of these funds at the outset is also essential for investors to decide on where to invest,” the manager says.
Analysis of the 20 biggest multi-asset shows a wide range of risks and returns. For example, the best average return over the previous three years offered 9.8% annually, against the poorest in this group by this measure, which offered just 2.8%. Levels of volatility risk meanwhile ranged from 8.9% to 2.1%. ING IM suggests that investors may want to rank the multi-asset funds they are investigating by their respective Sharpe ratios, as this will indicate which funds are offering a better balance of risk and reward.