Investing Basics: Passive Multi-Asset Investment
Passive multi-asset funds deliver a low-cost, readymade basket of investments managed by a professional investment manager or team of experts; as ‘Do it For me’ solutions, they may be the ideal solution for less confident investors, or maybe those looking to build long term wealth without devoting too much time to managing their portfolio.
We previously looked at the decision making process adopted by Square Mile Research when considering multi-asset funds – Focus on Funds: Success Factors for Multi-asset Selection and in this article we look at some of the options that exist.
‘as ‘Do it For me’ solutions, they may be the ideal solution for less confident investors, or maybe those looking to build long term wealth without devoting too much time’
Each of these represent low-cost, diversified investment portfolios where the fund manager chooses and manages the countries, sectors and types of investments included on your behalf.
Your decision making will be limited to selecting one particular investment house rather than another, and then deciding upon the risk/reward characteristics of the portfolio you are most comfortable with – typically there will be five choices ranging from those that are the safest, and therefore the least volatile, to the most adventurous, which could give you a bumpy ride, but may potentially deliver better returns over a long investment horizon.
Multi-asset funds are a good way for those new to investing to get to grips with the basics and some of the terminology that for decades was the City’s exclusive lexicon; ‘asset allocation’ may sound daunting until you realise that it is simply the mixture of assets your money is invested in – cash, shares, property etc, and where it is invested – UK, US, emerging markets?
This is asset allocation – like any good chef, the way your assets are selected and blended make for a good ‘multi-asset’ manager.
‘no-one likes thinking of taking risks with their money but that has to be balanced against the risk that your money won’t work hard enough’
Your other key decision, and one that will colour those around risk and reward, will be the duration of your investment; no-one likes thinking of taking risks with their money but that has to be balanced against the risk that your money won’t work hard enough – cash under the mattress is ‘at risk’ on the basis that its ‘real’ value, or spending power is eroded by inflation.
There is a natural tendency to just settle for something in the middle, but however well the ‘third cheapest bottle of wine on a list’ approach may have served you in the past, it is worth devoting some time to working out timeframes for your various financial objectives and achieving peace of mind.
Risk, and putting your hard-earned in harm’s way, triggers a very personal response; even if you are investing for 10 years or more, and could therefore in theory afford to select a more risky mix of shares, there’s no point if it will keep you awake at night when the inevitable turbulence arrives, or worse still, cause you to cash in at the bottom.
We have previously taken a close look at Vanguard’s Livestrategy Funds, and that article can be found at Simple DIY Investing with Vanguard LifeStrategy Funds and deliver a summary hereunder; we also look at some of the alternative low-cost ‘multi-asset’ funds that are available
Vanguard Lifestrategy Funds
Vanguard offers a range of five fixed-weighted funds which provide investors with a graduated exposure to equity assets; the funds follow a predetermined asset allocation which doesn’t change – the 80% equity option, will always comprise 80% exposure to equities.
There are five options to choose from, with the number in the name representing the proportion of equities held by each fund ranging from Lifestrategy 20% Equity Fund to Lifestrategy 100% Equity Fund.
‘Square Mile believes the funds represent good value for money’
Vanguard believes this to be the best approach, as over time investors have found it difficult to add value through tactical asset allocation.
However, from a risk perspective it could be argued that this approach has its drawbacks as the fund could be investing into highly valued assets just to maintain the ‘shape’ of the fund, without any regard to the price that the assets are trading at.
Its funds are made up of Vanguard’s own passive index tracking funds, and therefore the ongoing charge figure (OCF) for the funds is very low.
At just 0.22% annual charge, Square Mile believes the funds represent good value for money, as investors can obtain access to a diversified global portfolio for about one- third of the price of a standard active equity fund.
The independent researcher also has a high regard for the constituents in the portfolio and think investors are accessing one of the best passive providers in the market; each fund contains over 1,000 individual investments.
HSBC Global Strategy Portfolios
HSBC ‘s five Global Strategy funds offer investors a diversified mix of global equities, fixed income and property investments which target a specified level of risk over the longer term.
The team amend the exposure to these types of investments in response to economic changes; ongoing charge fees are 0.20% at which Square Mile believes the funds offer investors good value for money and are structured to be able to adapt to the changing economic environment.
‘this team knows what its doing and has great inputs to help plan their investments’
Fund manager, Jane Davies, is an experienced multi-asset investor, supported by the well-resourced Global Multi-Asset Team; Square Mile believes that HSBC’s robust proprietary optimisation process and sensible forward-looking market assumptions help form a strong strategic asset allocation framework for the funds on a par with other approaches.
In a nutshell, this team knows what its doing and has great inputs to help plan their investments; HSBC’s passive funds represent a significant portion of the portfolio, and are well managed by HSBC’s passive management team.
Standard Life MyFolio Market range
According to Standard Life – ‘Our MyFolio Managed options let you invest like an expert without having to actively manage your investments. They include a variety of different types of investment in one solution, so they’re as quick and simple as investing gets.
All you have to do is choose the most appropriate one for you based on how much risk you’re comfortable taking. Our experts will do the rest’
‘Square Mile feels ASI’s approach is robust and can deliver an outcome for clients that should meet their expectations’
MyFolio is part of a strong overall risk targeted proposition offered by Aberdeen Standard Investments (ASI); the three main facets to the funds’ strategy – strategic asset allocation (long-term view), tactical asset allocation (shorter-term tweaking) and fund selection – are all well-resourced and contain suitably experienced individuals.
The whole process is overseen and controlled by a committee of senior executives within ASI, which includes the ASI Multi-Asset Investment team responsible for the popular Global Absolute Return Strategy (GARS) fund, providing the tactical overlay.
Square Mile feels ASI’s approach is robust and can deliver an outcome for clients that should meet their expectations; it is a low-cost solution that will predominantly invest in index tracking funds.
L&G Multi-Index funds
L&G has created a range of low-cost risk-targeted funds which Square Mile believes plays to a number of the business’ key strengths; it has a proven track record in building and managing risk aware multi-asset strategies, witness the success of its long-running with-profits fund.
L&G has the advantage of being a market leader within index funds and one of the largest providers in the UK; its range of index funds is broad which permits the managers to build multi-index portfolios that are well-diversified across asset class and via regions.
‘Square Mile believes that L&G has the capability within the business to provide high-quality risk-targeted investment solutions’
The resources at L&G are deep and strong across asset allocation, fund management and risk management; Square Mile believes this gives them a good platform from which to build multi-asset solutions.
The lead fund manager is Justin Onuekwusi who is experienced in managing risk-targeted and other multi-asset products; the asset allocation team supports him, and has grown over recent years to meet the growth in assets they are responsible for as well as the wide opportunity set now available to multi-asset investors.
Square Mile believes that L&G has the capability within the business to provide high-quality risk-targeted investment solutions; the Multi Index funds offer investors access to five portfolios that are low-cost, actively managed and well-diversified by asset class.
The overall cost of the funds makes them a particularly compelling proposition for investors that wish to have a greater control over the level of risk they are prepared accept to meet their financial goals; investors should remember that as the funds predominantly use passive strategies as building blocks, the returns of these strategies will be limited to the returns of the index they are tracking.