Why consider investing in multi-asset funds?
“The only free lunch on Wall Street is diversification” were the wise words of Nobel-laureate Professor Harry Markowitz, well-known for his diversification theory in the 1950s. So the Holy Grail for the typical investor is to make sure that their assets are properly split across a range of asset classes. Besides the vast amount of options, every investment opportunity presents its own set of benefits and challenges.
However once you have diversified across various asset classes, the challenge is monitoring these investments, as key events might impact the financial markets and therefore your investments.
Investment companies such as AXA Investment Managers employ fund managers who conduct extensive research across asset classes and buy and sell assets based on the long-term objectives of the fund. With the scale, resources and access to a diversity of vehicles, many investors may find it easier to invest in multi-asset funds to gain exposure, rather than managing everything themselves.
So what is a multi-asset fund?
In its simplest terms, multi-asset investing is the process of gaining exposure to a diverse mix of asset classes or styles. Multi-asset funds invest in a wide range of asset classes, typically combining securities, like stocks and bonds, with alternative investments, like real estate or even commodities, such as gold.
The basic goal is twofold - to generate returns while at the same time managing risk by regular monitoring and managing the impact of markets and other factors on various asset classes including buying, selling or holding assets that collectively aim to achieve the objective of the fund. So in simple terms, multi-asset funds are a one-stop shop solution, specifically when the financial markets are volatile.
It is still important to note that asset classes can be very volatile and you could lose some, if not all, of what you invest. This could be due to various factors such as political, structural and economic changes. Some multi-asset funds invest in derivatives**, which can be especially volatile.
**Derivatives are investments, whose value depends on the changes in an underlying asset or security. The stock is not physically held but there is a contract based on a number of predictions in time or price in the future. The use of derivatives can result in greater fluctuations of a fund’s value and may cause the fund to lose as much as, or more than, the amount invested.
How do you decide on the right multi-asset fund?
As a result of the popularity of these vehicles there is a multitude of products, which come in different shapes and sizes, to choose from. For example, among others there are vehicles which aim to deliver capital growth and others which target income, while some look to deliver both.
When investing in a multi-asset fund, investors should ensure that they speak to a financial adviser and/or ensure that the fund objectives match their investment objectives and risk appetite.
Ultimately multi-asset funds can work as a potential solution for retail investors, as they take away the responsibility of having to run a portfolio of investments. However, for anyone considering this route, again, it is essential to discuss with their financial advisors on which type multi-asset fund to opt for based on their overall investment objectives and risk preferences.