18 Apr 2024

Reshma Moloo

Head of Multi Asset, HSBC Global Private Banking and Wealth 

Multi-asset funds have emerged as a powerful tool for investors, giving access to a diverse range of asset classes within a single fund. These funds give fund managers the flexibility to access the potential of equities, bonds, cash and even non-traditional assets, according to changing market conditions, rather than being restricted to single types of assets. This gives investors the potential opportunity to benefit from the knowledge of the fund manager, who can adapt rapidly to market movements.

When it comes to risk, multi-asset funds will be managed to stay within the risk level they have set out. What this means is that multi-asset funds at the lower-end of the risk scale will tend to have higher proportions of things fixed income and gilts. Higher-risk funds will tend to have a higher proportion invested in equities. This is referred to as Asset Allocation. While lower-risk funds tend to have lower volatility than higher-risk strategies, they typically offer lower growth opportunity. 

A key advantage of multi-asset funds is their level of diversification. Multi-asset investing is based on the principle that asset classes perform differently in different market conditions. Often where one type rises, those same conditions means another type falls. Multi-asset funds can provide a smoother ride when markets rise and fall, by spreading investments across multiple asset classes over the longer term. 

Multi-asset funds can be especially good for investors who are nervous about volatility. By spreading risk across market segments, fund managers aim to make the most of the positive performance of certain asset classes when others are losing value. This helps smooth out overall investment performance and can be ideal for newer investors who are nervous about volatile markets. In an ever-changing market landscape, the ability to manage risk effectively is valuable for investors seeking stability and long-term growth.

Actively managed multi-asset funds have the advantage of adaptability. Fund managers can respond quickly and adjust the exposure to specific asset classes, capitalising on short-term opportunities and managing downside risks. For example, a manager may increase equity exposure while reducing bond holdings if they perceive stocks to be more attractive. Multi-asset fund managers will often commit to remaining within a specific risk profile, so an investor who has opted for a cautious risk approach can be reassured that their investment will remain within this cautious risk definition.

Global interest rate increases over the past year have made bond and equity valuations cheaper. However, it’s expected that central banks will start to reduce interest rates over the coming months, as inflation is easing across the world. What this means is that equities could benefit from improved market confidence, while bond prices may get a boost from the lower yields expected after interest rate reductions. In this environment, well-diversified portfolios could outperform cash in the next 6-12 months, making multi-asset funds, especially those focusing on bonds, a potentially attractive option for some investors.

Any investor can benefit from effectively ‘outsourcing’ the selection of assets and funds to a specialist fund manager. However, less experienced investors might find this option particularly attractive. Rather than buying single stocks, specific asset classes or sectors, multi-asset funds are a cost-effective way to gain exposure to a wide range of investments. These funds can serve as a core allocation in portfolios, complemented by satellite allocations tailored to an investor’s preferences and objectives.