It’s almost a certainty that you have invested in a multi-asset portfolio or fund at some point in time. Most of us will spend our whole lives in one – your superannuation is run as a multi-asset portfolio after all. But when it comes to investing outside of super, many investors can also find plenty to like about these options as a wealth solution.
There are also the horror stories.
First Guardian and Shield Master Funds were positioned as multi-asset portfolios and have lost investors millions. Or, many institutional multi-asset portfolios were hard hit back in the Global Financial Crisis off the back of exposure to US mortgage-backed securities or were overleveraged and faced margin calls.
Some investors shy away from these vehicles fearing the old adage about all your eggs in one basket, but done well and selected carefully for your needs, a multi-asset portfolio can offer diversified exposure designed to operate across markets.
Here are some factors to keep in mind to help you make the right choice for you, and avoid mistakes.
Multi-asset doesn’t mean one size fits all – just as your goals and needs may not be the same as your neighbours, there are a variety of styles and types of multi-asset portfolios. Some may be designed to offer income and a more conservative investment style, while others may target a high level of growth.
Before you invest in a multi-asset portfolio, consider what you need to achieve from your investments so you can find a portfolio that better suits those goals and needs. There’s no point in investing in a balanced fund if you are needing high growth outcomes for example – or on the flip side, if you are needing a conservative approach, a high growth portfolio may mean you are taking on too much risk.
You can find the objectives for your selected multi-asset portfolios in the product disclosure statements.
After establishing your needs for this investment, you’ll find that the objectives or benchmarks of a multi-asset portfolio will look or sound a bit different from other single-asset investments. Single-asset investments may aim to outperform a specific relevant index, whereas multi-asset investments might have a stated objective to outperform CPI or the cash rate by a certain amount. In some cases, they might use a composite benchmark blended up of underlying single-asset benchmarks.
To give you an illustration of what this might mean, consider the following example.
The Surrey Australian Equities Fund is a single-asset fund and its stated objective is to outperform the S&P/ASX Small Ordinaries Accumulation Index over rolling 5-year periods. By contrast, the Ord Minnett Multi-Asset High Growth Portfolio which is a multi-asset portfolio, aims to outperform the RBA cash rate plus 4%, over five years, after fees.
You might find in the performance reports that performance is broken into the underlying asset classes and benchmarked against relevant indices, but not all fund managers will necessarily do this.
If you are adding a multi-asset portfolio to an existing portfolio, be careful to take the time to understand the underlying assets so you know if you are really diversifying your portfolio.
A multi-asset portfolio can mean investing over many asset classes, or just a few.
Take Ironbark Capital (ASX: IBC) as an example which invests in both ASX listed securities and fixed income, or by contrast, the Contrarius Australia Balanced Fund which invests in equities, fixed income and commodities from Australia and globally.
How you might use these might look completely different. You might use one alongside niche targeted exposures for broader diversification, or the other as a regional exposure alongside other investments to cover other assets or regions.
Regardless of what is already in your portfolio, take the time to understand how diversified the multi-asset portfolio truly is. Look at the underlying asset and regional allocations to understand your exposures – if you are using a portfolio for global exposure but it is 90% exposed to the US, you may find it is not sufficiently diversified for your needs. Or if a portfolio designed to offer income is primarily invested in short-term government bonds, with a very small exposure to dividend paying equities, you may find it isn’t diversified enough across types of income-bearing assets to offer consistent returns for your needs.
Multi-asset portfolios can be structured in a range of ways.
You can have listed and unlisted managed funds, such as Contrarius Global Balanced Fund, where your money is pooled in a trust alongside other investors and managed on your behalf.
Alternatively, you can have managed portfolios where your money is invested individually for you according to a selected strategy with a fund manager, such as Mawson Market Neutral Managed Portfolio Service.
Either structure can have minimum investment requirements, and in some cases, may only be available to wholesale or institutional investors with large bases. Managed portfolios offer beneficial ownership of the underlying assets, which can be tax efficient for some investors and may offer more tailoring to an investor’s needs depending on the option they select, but can also bear different management costs compared to investing in a retail managed fund.
Different structures can offer different liquidity and levels of access – consider a listed managed fund option can be traded instantly if an investor desires, whereas an unlisted option or managed portfolio may require specific timeframes for redemption to allow for sales of underlying assets.
Search and compare a purposely broad range of investments and connect directly with product issuers.
When you invest in a multi-asset portfolio, you may be getting the expertise of one specific fund manager issuing the fund – or you may be exposed to many. It depends on how the investment is managed and may shift how you research what you are investing in.
An example of a multi-asset investment with a single fund manager is the Frame Futures Fund. In this instance, Frame Funds are not just responsible for issuing the fund, they set the strategy and manage each underlying asset, such as the equities, bonds, currencies and commodities. When researching this option, you can focus on this one fund manager.
An example of a multi-asset investment with exposure to many fund managers is the Affluence Investment Fund which uses 20-35 underlying managers. This approach can also be referred to as a ‘fund of funds’ structure. In this version, Affluence Funds Management issues the fund, sets the strategy and asset allocations and selects underlying fund managers to manage certain assets, like Australian equities. Many super funds operate this way too.
When researching this option, you may want to spend the time considering the expertise and track records of the underlying asset managers too. Bear in mind that each of the underlying fund managers would have their own fee structure contributing to the overall fee you pay on your investment.
You might feel more comfortable with one form of management over the other, or have no preference. Understanding your manager exposure though is an important part of due diligence and keeping you alert to what that means for your broader portfolio.
Be it a single-asset portfolio or a multi-asset portfolio, one of the key mistakes investors make is not being aware of liquidity and access. Funds may invest in assets that are illiquid and your access to withdraw money may be more restricted.
Things to look for:
-Ability to withdraw money and any timeframes involved.
-Underlying assets and how liquid or illiquid these are
These should be covered in the product disclosure statements.
Alongside this, think about
Choosing the Right Option for You
Some investors prefer a complete DIY approach, while others find using a multi-asset portfolio within their investments can allow them to focus on their objectives rather than worrying about the daily admin and adjustments.
As with all investments, the key things to remember come back to knowing your personal objectives and investment strategy, doing your due diligence on the options that are available within that, and being mindful of fees, performance and liquidity. A multi-asset portfolio doesn’t remove the need to regularly assess your strategy to make sure it meets your needs so, whether you do this yourself, or seek expert advice, it continues to be a critical part of investing.
As a final thought: just as in any other investment, quality matters – both in the underlying assets and the selected fund managers.
The Fund objective is to outperform the S&P/ASX Small Ordinaries Accumulation Index over rolling 5-year periods. (For Wholesale Investors Only)
The portfolio aims to outperform the RBA cash rate plus 4%, over five years, after fees.
Ironbark Capital is a listed investment company investing in ASX listed securities and fixed income securities in a balanced manner to achieve its absolute return objective over time. The portfolio emphasises income generation and will typically invest in buy & write strategies, property trusts, utilities, infrastructure, hybrids, corporate bonds and fixed interest securities.
An actively managed asset allocation fund that invests in a portfolio of equities, fixed income and commodity-linked investments from Australia and globally. The Fund employs Contrarius’ valuation-based, contrarian investment philosophy.
The Fund seeks to produce attractive risk-adjusted returns with low long term average correlation to traditional equity markets. It seeks to achieve returns from its multi strategy approach, over the medium to long term. (For Wholesale Investors Only)
AIF aims to deliver above average results but in a very different way to a traditional investment fund. We seek to invest with 20-35 underlying managers across all asset classes, in a way in which we believe balances maximum returns with low volatility.
Disclaimer: This article is prepared by Sara Allen. It is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.
-s5c0uf81il26meg3icyx.png)
-5bk99rneoh6q6ud0ea67.png)
-pxiuel5d343plbjy7hdo.png)
-er8pjw6dhp98wpb4zm31.png)
-zpjeccpxe33g6pvf8k4p.png)
-3i6bx8sqjbfe2qcm0orn.png)
