Changing perspectives on multi asset
The majority of advisers favour multi asset investing to generate wealth for their clients, according to the latest research.
A survey commissioned by Fidelity quizzed a mix of IFAs, restricted advisers, paraplanners and discretionary wealth managers and found that a whopping 91 % of them recommend multi asset products to their clients. This trend is set to rise with 34% of advisers claiming that they expect a slight increase in their use of multi asset products as clients review their finances and are able to direct more investment that way.
The research also found that 7% of advisers expect a significant increase, which is due to their clients retiring soon and needing to have their investments in a relatively safe place. The trend was noted by Lesley James, director at Marlow-based Simplified Money. She said: “We see multi asset passive funds as the starting point for every portfolio. The evidence continues to show that low cost passive funds perform better than the majority of equivalent active managers. Multi asset then provides the added diversity, predictable risk levels and in-built rebalancing. All for very low fees.
“At Simplified Money we target the mass affluent and most of our clients are very well served with this approach.”
Aamina Zafar takes a look at the results of the
Professional Adviser/Fidelity 2019 survey on multi
asset investments and how they are selected
Aj Somal, chartered financial planner for Birmingham-based Aurora Financial Planning, said: “We also recommend multi asset to our clients, as it enables clients to obtain a widely diversified portfolio in a number of segments. I can see the uptake of these multi asset products increasing in the next few years, as clients become more aware of these products.
“However, the pitfalls can be potential OCF charges on these products which drag down returns, so they have to be compared with alternative investment strategies.” Interestingly, 50% of advisers said they expect their use of multi assets to remain the same, due to the fact they already use this approach for 90%
of clients.
This comes as advisers have been increasingly turning to multi asset allocation over the past three years, with 30% saying their use has increased slightly and 23% claiming their use has significantly increased.
One of the reasons advisers have significantly increased their allocation to multi asset products is due to the MiFID II reporting requirements, as additional MA funds are rebalanced automatically. However, on the other end of the scale, advisers who said their allocation to multi assets slightly decreased claimed it was due to the fact that performance has not been great over a 5-year period.
This was echoed by Keith Churchouse, chartered financial planner at Guildford-based Chapters Financial, who said:
“We do not actively advocate multi asset funds, maintaining some smaller holdings, preferring what we believe to be a more active management approach to our client allocations. We do not anticipate that our position will change over time.”
When quizzed over the criteria used when comparing and selecting multi asset investments, the majority of advisers said investment strategy, past performance and availability of fund on a platform were import factors.
However, investing in multi asset funds is not without challenges as 53% of advisers cited costs as a key hurdle, while 32% said poor performance was another challenge. Interestingly, 31% said having too many multi asset funds to choose from was another stumbling block. When it comes to the investment make-up of a typical client portfolio, 38% was made up of pensions, which was followed by investments at 36%, while property came in at third place with 15%. Savings and cash only made 10%.
The analysis also found that clients do raise concerns during the advice process when considering multi asset funds. In fact, the most popular fear is shared by 39% who expressed concerns about downside protection and volatility spiking during periods of market distress, while 37% expressed fears about short-term performance and 36% said they worry about multi asset funds ability to add value. The fourth biggest concern was worry about long-term performance, which was shared by 32% of clients.
Mean percentage figure shown for each type of client
The data also found that clients do not need to be big spenders in order to be profitable for an adviser’s books, as 49% of clients had a portfolio of between £100,000 to £250,000. This was followed by 21%, who had a portfolio of around £250,000 to £500,000, while 19%, which is the third largest group, have a portfolio size between £50,000 and £100,000.
Interestingly, only 2% had a portfolio of around £50,000, while clients with a portfolio of £1m to £2m made-up just 3% of clients. When it comes to the minimum investment required for investing in shares or fund, a massive 50% of clients invested less than £25,000.
This was followed by 17% who contributed between £25,000 to £50,000, and 15% who were able to invest £50,000 to £75,000. At the top end, only 1% of clients invested £500,000 to £750,000, while nobody invested more than £1m.
Do you recommend multi asset products as part of your services?
What is the size (£) of a typical customer portfolio that you advise on or manage?
On which of the following clients behalf have you used multi asset funds to invest over the past year?
Approximately what percentage of your assets under advice for this client base is made up of multi asset strategies?
How has your allocation to multi asset changed over the past three years?
“We recommend multi asset [solutions] … it enables clients to obtain a widely diversified portfolio in a number of segments”
Aj Somal, Aurora Financial Planning
CLICK GRAPH TO VIEW DATA BREAKDOWN
CLICK GRAPH TO VIEW DATA BREAKDOWN
Key decision criteria for the majority of advisers: investment strategy, past performance and availability of the fund on a platform
39% expressed concerns about downside protection
and volatility spiking during periods of market distress
53%
of advisers cited costs as a key hurdle of investing in
multi asset funds
Mass retail market
Young professionals
(age 18-40)
40-60 year old accumulation saver
Mass affluent
At retirement individuals
DB transfer clients
High net worth individuals
Other
Do you recommend multi asset products as part of your services?
Source: Fidelity International, April 2019
How has your allocation to multi asset changed over the past three years?
Source: Fidelity International, April 2019
What is the size (£) of a typical customer portfolio that you advise on or manage?
Source: Fidelity International, April 2019
CLICK GRAPH TO VIEW DATA BREAKDOWN
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Number of respondents:
Who did we survey?
Independent financial advisers, paraplanners, discretionary wealth managers
150
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Vanguard and Premier were both the most popular multi asset funds and were recommend by 16%
of advisers
39% expressed concerns about downside protection
and volatility spiking during periods of market distres
Vanguard and Premier were both the most popular multi asset funds and were recommend by 16% of advisers. Prudential was the second most popular choice among 15% of advisers, while Royal London was the third most popular option for 13% of advisers. Standard Life and Aviva came joint forth with 11% of advisers, while L&G was the fifth most popular choice among 10% of advisers.
When quizzed over the criteria used when comparing and selecting multi asset investments, the majority of advisers said investment strategy, past performance and availability of fund on a platform were import factors.
However, investing in multi asset funds is not without challenges as 53% of advisers cited costs as a key hurdle, while 32% said poor performance was another challenge. Interestingly, 31% said having too many multi asset funds to choose from was another stumbling block. When it comes to the investment make-up of a typical client portfolio, 38% was made up of pensions, which was followed by investments at 36%, while property came in at third place with 15%. Savings and cash only made 10%.
The analysis also found that clients do raise concerns during the advice process when considering multi asset funds. In fact, the most popular fear is shared by 39% who expressed concerns about downside protection and volatility spiking during periods of market distress, while 37% expressed fears about short-term performance and 36% said they worry about multi asset funds ability to add value. The fourth biggest concern was worry about long-term performance, which was shared by 32% of clients.
Aj Somal, chartered financial planner for Birmingham-based Aurora Financial Planning, said: “We also recommend multi asset to our clients, as it enables clients to obtain a widely diversified portfolio in a number of segments. I can see the uptake of these multi asset products increasing in the next few years, as clients become more aware of these products.
“However, the pitfalls can be potential OCF charges on these products which drag down returns, so they have to be compared with alternative investment strategies.” Interestingly, 50% of advisers said they expect their use of multi assets to remain the same, due to the fact they already use this approach for 90% of clients.
This comes as advisers have been increasingly turning to multi asset allocation over the past three-years, with 30% saying their use has increased slightly and 23% claiming their use has significantly increased.
One of the reasons advisers have significantly increased their allocation to multi asset products is due to the MiFid II reporting requirements, as additional MA funds are rebalanced automatically. However, on the other end of the scale, advisers who said their allocation to multi assets slightly decreased claimed it was due to the fact that performance has not been great over a 5-year period.
This was echoed by Keith Churchouse, chartered financial planner at Guildford-based Chapters Financial, who said:
“We do not actively advocate multi asset funds, maintaining some smaller holdings, preferring what we believe to be a more active management approach to our client allocations. We do not anticipate that our position will change over time.”
Mass retail market
Young professionals
(age 18-40)
Mass affluent
High net worth individuals
NEXT
BACK
40-60 year old accumulation saver
At retirement individuals
DB transfer clients
Other
NEXT
BACK
On which of the following clients behalf have you used multi asset funds to invest over the past year?
Mean percentage figure shown for each type of client
Approximately what percentage of your assets under advice for this client base is made up of multi asset strategies?
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Aj Somal, chartered financial planner for Birmingham-based Aurora Financial Planning, said: “We also recommended multi asset to our clients, as it enables clients to obtain a widely diversified portfolio in a number of segments. I can see the uptake of these multi asset products increasing in the next few years, as clients become more aware of these products.
“However, the pitfalls can be potential OCF charges on these products which drag down returns, so they have to be compared with alternative investment strategies.” Interestingly, 50% of advisers said they expect their use of multi assets to remain the same, due to the fact they already use this approach for 90% of clients.
This comes as advisers have been increasingly turning to multi asset allocation over the past three years, with 30% saying their use has increased slightly and 23% claiming their use has significantly increased.
One of the reasons advisers have significantly increased their allocation to multi asset products is due to the MiFID II reporting requirements, as additional MA funds are rebalanced automatically. However, on the other end of the scale, advisers who said their allocation to multi assets slightly decreased claimed it was due to the fact that performance has not been great over a 5-year period.
This was echoed by Keith Churchouse, chartered financial planner at Guildford-based Chapters Financial, who said: “We do not actively advocate multi asset funds, maintaining some smaller holdings, preferring what we believe to be a more active management approach to our client allocations. We do not anticipate that our position will change over time.”
The analysis also found that clients do raise concerns during the advice process when considering multi asset funds. In fact, the most popular fear is shared by 39% who expressed concerns about downside protection and volatility spiking during periods of market distress, while 37% expressed fears about short-term performance and 36% said they worry about multi asset funds ability to add value. The fourth biggest concern was worry about long-term performance, which was shared by 32% of clients.
When quizzed over the criteria used when comparing and selecting multi asset investments, the majority of advisers said investment strategy, past performance and availability of fund on a platform were import factors.
However, investing in multi asset funds is not without challenges as 53% of advisers cited costs as a key hurdle, while 32% said poor performance was another challenge. Interestingly, 31% said having too many multi asset funds to choose from was another stumbling block. When it comes to the investment make-up of a typical client portfolio, 38% was made up of pensions, which was followed by investments at 36%, while property came in at third place with 15%. Savings and cash only made 10%.
The data also found that clients do not need to be big spenders in order to be profitable for an adviser’s books, as 49% of clients had a portfolio of between £100,000 to £250,000. This was followed by 21%, who had a portfolio of around £250,000 to £500,000, while 19%, which is the third largest group, have a portfolio size between £50,000 and £100,000.
Interestingly, only 2% had a portfolio of around £50,000, while clients with a portfolio of £1m to £2m made-up just 3% of clients. When it comes to the minimum investment required for investing in shares or fund, a massive 50% of clients invested less than £25,000.
This was followed by 17% who contributed between £25,000 to £50,000, and 15% who were able to invest £50,000 to £75,000. At the top end, only 1% of clients invested £500,000 to £750,000, while nobody invested more than £1m.
39% expressed concerns about downside protection
and volatility spiking during periods of market distress
“We recommend multi asset [solutions] … it enables clients to obtain a widely diversified portfolio in a number of segments”
Aj Somal, Aurora Financial Planning
Key decision criteria for
the majority of advisers: investment strategy, past performance and availability of the fund on a platform
The majority of advisers favour multi asset investing to generate wealth for their clients, according to the latest research.
A survey commissioned by Fidelity quizzed a mix of IFAs, restricted advisers, paraplanners and discretionary wealth managers and found that a whopping 91 % of them recommend multi asset products to their clients. This trend is set to rise with 34% of advisers claiming that they expect a slight increase in their use of multi asset products as clients review their finances and are able to direct more investment that way.
The research also found that 7% of advisers expect a significant increase, which is due to their clients retiring soon and needing to have their investments in a relatively safe place. The trend was noted by Lesley James, director at Marlow-based Simplified Money. She said: “We see multi asset passive funds as the starting point for every portfolio. The evidence continues to show that low cost passive funds perform better than the majority of equivalent active managers. Multi asset then provides the added diversity, predictable risk levels and in-built rebalancing. All for very low fees.
“At Simplified Money we target the mass affluent and most of our clients are very well served with this approach.”
Source: Fidelity International, April 2019
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BACK
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What is the size (£) of a typical customer portfolio that you advise on or manage?
of advisers cited costs as a key hurdle of investing in multi asset funds
53%
How has your allocation to multi asset changed over the past three years?
TAP ON FIGURES TO VIEW ANSWERS
Our allocation to
multi asset has significantly decreased
Our allocation to
multi asset has slightly decreased
Our allocation to
multi asset has stayed
the same
Our allocation to
multi asset has slightly increased
Our allocation to
multi asset has significantly increased
Do you recommend multi asset products as part of your services?
TAP ON FIGURES TO VIEW ANSWERS
Yes - we already use or recommend a range of multi asset funds or model portfolio services
No - we do not use or recommend multi asset products at all
No - but we intend to start using or recommending multi asset funds or model portfolio services as part of our services
Changing perspectives on multi asset
Aamina Zafar takes a look at the results of the Professional Adviser /
Fidelity 2019 survey on multi asset investments and how they are selected
Number of respondents:
Who did we survey?
IN BRIEF
Independent financial advisers, paraplanners, discretionary wealth managers
150
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In the expanding universe of multi asset strategies...
...where are the stars?
As multi asset investing picks up speed, Fidelity's Multi Asset team looks at why it is gathering pace and the factors underlying successful strategy building
While the decade since the 2008 global financial crisis has seen major asset classes post strong returns, uncertainties have also been building. Quantitative easing has overturned many assumptions about asset price correlations and there may be similar surprises in store if central banks decide to wind down quantitative easing.
The result is that established approaches to diversification, such as a simple portfolio splits between equity and fixed income, have lost authority. Many investors are broadening investments by developing a multi asset approach (see side panel, right). A key attraction is that multi asset strategies can offer returns even in challenging market environments.
But multi asset strategies differ in terms of ambition, style, asset range, quality and global reach. Investors need to find the right approach as uncertainty over the economic cycle and fears of a bear market grow.
Charting the stars
Two pointers can help. First, at Fidelity we know that multi asset strategies must take account of the full and growing range of investments across the world. That’s not easy.
It takes deep resources to draw on the full range of global equity markets and a wide spectrum of fixed income markets including, for example, emerging market debt and loans. Strategy builders must also embrace a range of commodity, real estate and alternatives markets including infrastructure, asset leasing, and market neutral investment strategies.
Second, many investors can benefit from dynamic strategies
that respond to shorter-term events. For example, geopolitical events, uncertainties in asset correlations, or a step change in
the economic cycle.
In our fast-changing world, flexibility can be critical. At Fidelity, one of the focuses of our multi asset team is to identify tactical positions, e.g., on regions or currencies, that can create value whichever way the broader market moves.
That’s particularly important at times like now when markets are sending different signals than economic data, with indicators such as the Fidelity Leading Indicator suggesting world economies are at a crossroads, with suggestions of very weak but tentatively improving global growth (see right). In periods of prolonged economic uncertainty, investors may need shorter-term value opportunities across regions and the capital structure to deliver performance.
At Fidelity Multi Asset, two things drive how we construct our investment portfolios: the requirements of the investor; and our deep understanding of the range of global asset class behaviours. We use scenario analysis and other quantitative modelling to explore specific asset outcomes, find the right long-term asset mix for each strategy, and map out the investment ‘journey’ a client can expect over time.
Like the physical universe, however, the global multi asset universe is vast and rapidly expanding. To generate the best ideas, we examine that universe through three powerful lenses:
Our multi asset idea generator
Global growth is hesitant with only tentative signs of improving
Great creative ideas must be used in a disciplined way. Our portfolio managers select from a range of best ideas generated by our dedicated research functions, based on the portfolio’s desired outcome, and each idea’s potential role within each portfolio and their views on market conditions.
Then they take on board all the risk and reward implications. That means multi-faceted risk budgeting, for example, of alpha, risk, liquidity and cost in terms of portfolio objectives. After taking account of the asset allocation view developed by the team, and taking a view on the market and individual asset classes, our portfolio managers also build in shorter term opportunistic strategies. These tactical trades may be based on specific country performance, equity sectors or, for example, using gold exposure as a more defensive position.
The amount of flexibility depends on the Fidelity fund range in question (see section below). Meanwhile, each fund within a range is designed to offer a specific risk/reward profile to investors and their advisers. The five-strong Multi Asset Open range consists of the Multi Asset Open Defensive, Multi Asset Open Strategic, Multi Asset Open Growth, Multi Asset Open Adventurous and Open World funds. Each has a specific annual return target ranging from 4% for Defensive to 7% for Open World. The other three target returns of 5%, 5.5% and 6.5% respectively.
The Fidelity Multi Asset Income range takes a similarly dynamic approach to asset allocation. These funds are designed to deliver a natural income of 4-6% per year. The Fidelity Multi Asset Allocator funds are designed to be much less dynamic and use passive strategies to access the two major asset classes of equities and bonds. The five Allocator funds cost a flat 25 basis points and map on to different risk profiles.
Portfolio construction – creative, disciplined, flexible
Multi asset strategies offer new ways to rewrite the risk-reward balance in a portfolio. But these strategies are not created equal.
Investors need an approach that takes full advantage of the expanding universe of investable assets. It should offer access to shorter-term value opportunities across the capital structure. It should be both creative and disciplined. One approach may be
to take advantage of Fidelity’s global research platform, designed to respond creatively to a wide range of events and to deliver fully diversified portfolios through the cycle.
Discover the universe
Fidelity’s Multi Asset Funds
"Each fund within a range is designed to offer a specific risk/reward profile to investors and their advisers"
Multi Asset Open range
Multi Asset Allocator range
Multi Asset Income range
This range of five actively managed funds use a fully open architecture approach to target specific levels of risk-adjusted return, between 4-7%.
Using an active and flexible approach, each of the three funds aim to deliver a sustainable income of 4-6% with a focus on capital protection.
A range of five funds which use passive instruments to access global markets and asset classes in a cost-efficient manner.
Fidelity Leading Indicator (FLI)
Source: Fidelity International, April 2019
While the Fidelity Leading Indicator is showing modest acceleration, caution is warranted as trade tensions have again resurfaced. The FLI is a proprietary quantitative tool, designed to anticipate the direction and momentum of global growth over the coming months, and – importantly for investors – identify its key drivers. In practice, it is designed to lead global industrial production and other global cyclical variables by around 3 months. It is also available in a timelier manner than the bulk of official economic statistics.
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The Fidelity Multi Asset team manage three different ranges of funds offering clients a combination of income, growth and low-cost solutions. All thirteen funds aim to deliver the most optimal blend of assets in line with their target risk/return objectives and all are independently risk-profiled by Dynamic Planner, Defaqto, FinaMetrica and Synaptic to help easily align against clients’ risk expectations.
The Markets Research team exist to provide Portfolio Managers with the insight needed to generate alpha from allocating across markets. The team uses quantitative models to explore a range of market dynamics and indicators, identifying areas for further research in asset classes, regions, sectors and currencies. After more detailed research, the team engages to challenge any assumptions and fine-tune an evolving menu of tactical investment ideas.
Markets Research
CLICK ON TELESCOPES
The team combine quantitative and qualitative analysis to understand a broad universe of underlying strategies, proposing ideas for the Portfolio Managers to access markets. The team covers active, passive and ‘smart beta’ strategies, including those from within Fidelity and across the investment industry. As well as analysing quantitative dimensions such as holdings, performance, attribution, trading and risk metrics, the team makes expert judgments, for example about a strategy’s philosophy, people and processes.
Manager Research
Both Markets Research and Manager Research teams are supported by Fidelity Multi Asset’s Quantitative Research function, which designs the quantitative models that underpin our multi asset idea generation. The team follows a rigorous process for developing quantitative models, integrating them into the process of generating investment ideas, and monitoring their output through time. The team also creates its own ideas using factor and technical analysis.
Quantitative Research
Click here to find out more
or contact 0800 368 1732
Please note that the yield and target return are objectives and not guaranteed.
Funds: Defensive, Strategic, Growth, Adventurous, World
Funds: Defensive, Strategic, Growth, Adventurous, World
Funds: Income, Balanced Income, Income & Growth
Over the last 10 years, multi asset funds have seen a significant rise in popularity as a consequence of RDR, changes in pension freedoms and a greater pressure on advisers to justify their fees and demonstrate value to their clients. The IA Mixed Investment 20-60% shares sector has been the most popular in terms of net retail sales four times over that period.
The universe has also seen a considerable expansion with a complex array of investment products now available, each designed to deliver against different outcomes and risk appetites either investing directly in securities or via a fund of funds structure.
There are 551 multi asset funds across the three core IA sectors and they can all vary in terms of their investment process, where they invest and the risk profile they are adhering to. This paints an overwhelming picture for the adviser making it difficult to compare strategies like for like even within the same IA grouping as one fund in the group may look entirely different and exhibit an entirely different risk profile.
So it’s important for advisers to get under the bonnet of a strategy; understand the investment process, costs and long term performance of a fund.
91% of advisers currently recommend multi-asset products to their clients, according to research by Fidelity and Professional Adviser. And the trend is set to rise. Why do you think this is?
Benefits of outsourcing to a specialist such as Fidelity enables advisers to access a breadth of expertise and experience that they otherwise wouldn’t have along with the benefit from the scale of the research capability afforded by a bigger investment house. Essentially it’s a ‘one-stop shop’ for advisers to access a ready-made diversified portfolio. This, in turn helps with the management of risk and limitation of capital drawdown so the focus is on advisers to align fund risk with investor risk.
•
•
•
Why has multi asset investing boomed since the early 2000s?
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Past, present, future: trends in multi asset
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Advisers with limited resources to actively allocate - outsourcing to a multi asset provider makes sense so they can dedicate their value-add to clients by focusing on core financial planning rather than making all the investment decisions and focusing on the underlying asset allocation decisions.
Particularly useful for investors with smaller portfolios to achieve diversification and spread risk across assets and regions in one fund - cost-efficiencies.
We believe the growth trajectory of funds in the multi space seems set to continue as the structural drivers remain in place and pressure on costs continues. Demonstrating value for money, with attractive long term risk-adjusted returns and cost transparency will be a key focus for multi asset providers going forwards.
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This information is for investment professionals only and should not be relied upon by private investors. The value of investments and the income from them can go down as well as up and clients may get back less than they invest. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. These funds use financial derivative instruments for investment purposes, which may expose the funds to a higher degree of risk and can cause investments to experience larger than average price fluctuations. These funds invest in overseas markets and so the value of investments can be affected by changes in currency exchange rates. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0619/24244/SSO/0919
Important information
Please note that the yield and target return are objectives and not guaranteed.
While the Fidelity Leading Indicator is showing modest acceleration, caution is warranted as trade tensions have again resurfaced.
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This information is for investment professionals only and should not be relied upon by private investors. The value of investments and the income from them can go down as well as up and clients may get back less than they invest. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. These funds use financial derivative instruments for investment purposes, which may expose the funds to a higher degree of risk and can cause investments to experience larger than average price fluctuations. These funds invest in overseas markets and so the value of investments can be affected by changes in currency exchange rates. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0619/24244/SSO/0919
Important information
Tap here to find out more
or contact 0800 368 1732
A range of five funds which use passive instruments to access global markets and asset classes in a cost-efficient manner.
Funds: Defensive, Strategic, Growth, Adventurous & World
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Multi Asset Allocator range
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Using an active and flexible approach, each of the three funds aim to deliver a sustainable income of 4-6% with a focus on capital protection.
Funds: Income, Balanced Income, Income & Growth
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Multi Asset Income range
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This range of five actively managed funds use a fully open architecture approach to target specific levels of risk-adjusted return, between 4-7%.
Funds: Defensive, Strategic, Growth, Adventurous & World
TAP TO FIND OUT MORE
Multi Asset Open range
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Fidelity’s Multi-Asset Funds
Multi asset strategies offer new ways to rewrite the risk-reward balance in a portfolio. But these strategies are not created equal.
Investors need an approach that takes full advantage of the expanding universe of investable assets. It should offer access to shorter-term value opportunities across the capital structure. It should be both creative and disciplined. One approach may be
to take advantage of Fidelity’s global research platform, designed to respond creatively to a wide range of events and to deliver fully diversified portfolios through the cycle.
The Fidelity Multi Asset team manage three different ranges of funds offering clients a combination of income, growth and low-cost solutions. All thirteen funds aim to deliver the most optimal blend of assets in line with their target risk/return objectives and all are independently risk-profiled by Dynamic Planner, Defaqto, FinaMetrica and Synaptic to help easily align against clients’ risk expectations.
Discover the universe
Please note that the yield and target return are objectives and not guaranteed.
Please note that the yield and target return are objectives and not guaranteed.
Great creative ideas must be used in a disciplined way. Our portfolio managers select from a range of best ideas generated by our dedicated research functions, based on the portfolio’s desired outcome, and each idea’s potential role within each portfolio and their views on market conditions.
Then they take on board all the risk and reward implications. That means multi-faceted risk budgeting, for example, of alpha, risk, liquidity and cost in terms of portfolio objectives. After taking account of the asset allocation view developed by the team, and taking a view on the market and individual asset classes, our portfolio managers also build in shorter term opportunistic strategies. These tactical trades may be based on specific country performance, equity sectors or, for example, using gold exposure as a more defensive position.
The amount of flexibility depends on the Fidelity fund range in question (see section below). Meanwhile, each fund within a range is designed to offer a specific risk/reward profile to investors and their advisers. The five-strong Multi Asset Open range consists of the Multi Asset Open Defensive, Multi Asset Open Strategic, Multi Asset Open Growth, Multi Asset Open Adventurous and Open World funds. Each has a specific annual return target ranging from 4% for Defensive to 7% for Open World. The other three target returns of 5%, 5.5% and 6.5% respectively.
The Fidelity Multi Asset Income range takes a similarly dynamic approach to asset allocation. These funds are designed to deliver a natural income of 4-6% per year. The Fidelity Multi Asset Allocator funds are designed to be much less dynamic and use passive strategies to access the two major asset classes of equities and bonds. The five Allocator funds cost a flat 25 basis points and map on to different risk profiles.
Portfolio construction – creative, disciplined, flexible
"Each fund within a range is designed to offer a specific risk/reward profile to investors and their advisers"
At Fidelity Multi Asset, two things drive how we construct our investment portfolios: the requirements of the investor; and our deep understanding of the range of global asset class behaviours. We use scenario analysis and other quantitative modelling to explore specific asset outcomes, find the right long-term asset mix for each strategy, and map out the investment ‘journey’ a client can expect over time.
Like the physical universe, however, the global multi asset universe is vast and rapidly expanding. To generate the best ideas, we examine that universe through three powerful lenses:
TAP ON TELESCOPES
Our multi asset idea generator
These two teams are supported by the quantitative research team, which designs the quantitative models that underpin our multi asset idea generation. The team also creates its own ideas using factor and technical analysis.
Quantitative Research
With access to over 40 different reports to quantitatively assess managers using proprietary and third-party tools, this team aims to identify skilled active managers, including those within Fidelity. As well as analysing quantitative dimensions such as holdings, performance, attribution, trading and risk metrics, the team makes expert judgments, for example about a strategy’s philosophy, people and processes.
Manager Research
The Markets Research team exist to provide Portfolio Managers with the insight needed to generate alpha from allocating across markets. The team uses quantitative models to explore a range of market dynamics and indicators, identifying areas for further research in asset classes, regions, sectors and currencies. After more detailed research, the team engages to challenge any assumptions and fine-tune an evolving menu of tactical investment ideas.
Markets Research
Two pointers can help. First, at Fidelity we know that multi asset strategies must take account of the full and growing range of investments across the world. That’s not easy.
It takes deep resources to draw on the full range of global equity markets and a wide spectrum of fixed income markets including, for example, emerging market debt and loans. Strategy builders must also embrace a range of commodity, real estate and alternatives markets including infrastructure, asset leasing, and market neutral investment strategies.
Second, many investors can benefit from dynamic strategies that respond to shorter-term events. For example, geopolitical events, uncertainties in asset correlations, or a step change in the economic cycle.
In our fast-changing world, flexibility can be critical. At Fidelity, one of the focuses of our multi asset team is to identify tactical positions, e.g., on regions or currencies, that can create value whichever way the broader market moves.
That’s particularly important at times like now when markets are sending different signals than economic data, with indicators such as the Fidelity Leading Indicator suggesting world economies are at a crossroads, with suggestions of very weak but tentatively improving global growth (see below). In periods of prolonged economic uncertainty, investors may need shorter-term value opportunities across regions and the capital structure to deliver performance.
Charting the stars
Fidelity Leading Indicator (FLI)
Source: Fidelity International, April 2019
While the Fidelity Leading Indicator is showing modest acceleration, caution is warranted as trade tensions have again resurfaced. The FLI is a proprietary quantitative tool, designed to anticipate the direction and momentum of global growth over the coming months, and – importantly for investors – identify its key drivers. In practice, it is designed to lead global industrial production and other global cyclical variables by around 3 months. It is also available in a timelier manner than the bulk of official economic statistics.
In the expanding universe of multi asset strategies...
...where are the stars?
As multi asset investing picks up speed, Fidelity's Multi Asset team looks at why it is gathering pace and the factors underlying successful strategy building
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Past, present, future:
trends in multi asset
While the decade since the 2008 global financial crisis has seen major asset classes post strong returns, uncertainties have also been building. Quantitative easing has overturned many assumptions about asset price correlations and there may be similar surprises in store if central banks decide to wind down quantitative easing.
The result is that established approaches to diversification, such as a simple portfolio splits between equity and fixed income, have lost authority. Many investors are broadening investments by developing a multi asset approach (see below). A key attraction is that multi asset strategies can offer returns even in challenging market environments.
But multi asset strategies differ in terms of ambition, style, asset range, quality and global reach. Investors need to find the right approach as uncertainty over the economic cycle and fears of a bear market grow.
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