Multi-asset funds for today’s investors
The Aviva Investors multi-asset range of funds (MAF) provides investors with a one-stop investment shop, containing a diverse array of asset classes including equities, fixed income, commodities and property. The funds are run by specialist fund managers who decide how much to invest in the different asset classes and when to adjust the mix.
The MAF range comprises five funds, ranging from cautious to adventurous, so as to appeal to different types of investor. Each fund is carefully managed in an effort to ensure they stay in line with their risk objectives year after year.
Multi-asset investing has been at the heart of our fund management business for more than a decade. Our multi-asset team contains over 32 investment professionals, including economists, strategists and portfolio managers and as at 30 September 2016 oversaw in excess of £80 billion of assets.
Our global reach allows us to identify opportunities from across the world, so avoiding the home bias of many competing funds. Again unlike many other funds, we adjust portfolio positions as market conditions require rather than simply on a quarterly or annual basis.
We recognise that no-one is right all the time, so our team regularly stress tests the portfolios against different scenarios we identify.
A new approach to asset allocation
Traditionally, multi-asset funds have divided the investment universe into three buckets: equities, fixed income, and alternatives. By contrast, we categorize assets as ‘growth’, ‘defensive’, or ‘uncorrelated’.
Growth assets contain equities as well as the more risky areas of fixed income such as emerging-market debt and high-yield corporate bonds.
Defensive assets consist of the low-risk areas of fixed income such as developed government bonds, investment-grade corporate bonds and cash. The defensive bucket should provide some protection to a portfolio when the growth assets come under pressure.
Uncorrelated assets contain absolute-return strategies and property. It is important to have exposure to them as they can reduce portfolio risk since they tend not to move in tandem with equities or bonds.
Moving up the risk spectrum from MAF l to MAF V, the allocation to the growth bucket increases, while the allocation to the defensive and uncorrelated buckets declines. So whereas the growth bucket may account for 20 per cent of MAF I’s assets, it may account for 90 per cent in MAF V. But within the three buckets themselves the proportions stay the same. So for example, if UK equities account for 10 per cent of the growth bucket, that means they would in this instance account for two per cent of MAF I’s assets and nine per cent of MAF V’s.
Normal market conditions
It is important that investors understand exactly what we mean by the terms, growth, defensive and uncorrelated. In each case, the term applies to how we expect particular assets to behave in what we call ‘normal’ market conditions.
By normal we mean when markets behave in a calm and orderly fashion and there is considerable liquidity, which allows investors to easily buy and sell assets, and when there are not large variations in the buying and selling prices. In these circumstances we would expect growth assets to generate capital growth for the portfolio.
Defensive assets should in normal market conditions be relatively uncorrelated to growth assets, and should therefore help protect the portfolio. So, usually, in times of market stress, defensive assets should rise in value and offset some or all of the losses incurred by growth assets, smoothing overall returns.
Finally, uncorrelated assets should in normal market conditions perform independently of the other two categories. In other words, they should deliver positive returns in most market conditions.
Of course, financial conditions are not always normal and sometimes these assets will behave differently to the way described above.
For example, we are conscious that interest rates, having been on a downward trend for decades, will go up eventually. That will potentially cause bond prices to fall. So at present, our funds have a greater allocation to uncorrelated assets and less to bonds, than in the case of many of our competitors.