Andrew Harman, portfolio manager of the First State Diversified Growth fund, says there is an ongoing "evolution" of multi-asset investment to better meet the needs of investors.
He believes it had grown significantly from the old 60 per cent equities, 40 per cent bonds style, as "more granular allocations were included". He cites these combinations of assets as:
- Emerging equities.
- Global equities.
- Corporate credit.
- Property.
- Infrastructure.
- Foreign currency.
- Other more bespoke investment strategies.
Mr Harman adds: "Multi-asset, objective-based investing seeks to narrow the distribution of investment outcomes through the flexibility to mix beta (market risk exposure) and alpha (investment strategies uncorrelated to equities and bonds), and thereby reduce general market direction dependency."
Short, long and risk
Lukas Daalder, chief investment officer for Robeco, believes more investment houses will look to diversify not just on grounds of asset class or geography, but also on grounds of risk and correlation.
"We are already seeing a number of houses that look towards the macro risk factors, which is still a relatively new field. Additionally, risk parity, whereby one scales risks according to observed volatility, seems to have become more popular as well," he says.
For James Dowey, chief economist and chief investment officer for Neptune Investment Management, the way in which managers allocate based on short-term or long-term risk and investment horizons will also have to become more flexible.
He explains: "We're concerned there is too much emphasis today on dampening clients' short-term volatility. Of course, the ups and downs of the market are stressful, but so too is getting older and not being able to afford to retire because you've been invested in a portfolio that, while having spared you some of the volatility over the years, has also failed to grow.
"In fact, the deeply misguided idea in our industry that risk is simply volatility is at the heart of this. We see risk more broadly as the chance an investor fails to meet their ultimate financial objective.
"Minimising this risk will likely mean you simply have to accept some volatility along the way."
Accordingly, Mr Dowey sees two major problems for investors, which the industry will have to help with. The first is the tendency to have "excessive allocations to fixed income for long-term investors".
The second, he believes, is the allocation to "opaque and complicated absolute return strategies" that seek to deliver low volatility and uncorrelated returns.
He points out that approximately 40 per cent of the Investment Association Absolute Return sector has failed to beat cumulative inflation of 4.5 per cent over the past three years.
His comments are not entirely unfounded; the complexity and sheer size of the biggest absolute-return style multi-asset fund, the Standard Life Global Absolute Return Strategy (Gars) fund, has seen investors withdraw more than £10bn from it during 2017.
