BLOG: Five multi-asset ISA options for the undecided investor
“The biggest risk is not taking any risk… In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”
The words of American business owner, internet entrepreneur and philanthropist Mark Zuckerberg really should be used as a slogan for anyone who needs a simple explanation about the benefits of long-term investing. In simple terms, long-term investing gives you the ability to ride out market bumps; gives your money more time to compound and grow; removes emotion from investing; and, perhaps crucially, gives you some insulation from the threat of inflation.
As we approach the business end of the ISA season, the co-founder of Facebook’s quote is also a timely reminder for investors in what are really trying times for the economy. Recession is highly likely, geopolitical wrangling is rife, inflation continues to run at a high level and, at the time of writing, we’ve just seen the outbreak of a potential banking crisis.
Investors could be forgiven for thinking now is not the time to invest – some may even think the best approach is to hide their cash under the floorboards! But the reality is the benefits of long-term investing are there for all to be seen. For example, using over 148 years of data (to March 2020) on the US stock market index (S&P 500), it shows that if you invested for a single month, you would have lost money roughly 40% of the time in inflation-adjusted terms (704 of the 1,790 months).
These losses fall markedly the longer you invest – 20% and 10% over five and 10 years respectively. At 20 years it is negligible – of the 1,551 rolling 20-year periods between January 1871 and March 2020, there was only one where stocks lost money in inflation-adjusted terms (and that was between 1901 and 1921). While past performance is not a guide to future performance, on this occasion is does make a lot of sense.
How to pick the right horse when you don’t want to gamble
The other challenge is how to invest? You don’t want to be in the wrong place at the wrong time. There are some 4,500 funds available to investors in the UK. The opportunity is both vast and complicated – so you can understand why investors are wary of making the wrong choice.
Step forward multi-asset funds – they differ from traditional funds by targeting a specific investment outcome, such as a return above inflation, rather than performance against a specific benchmark or index like the FTSE 100 (the largest 100 companies in the UK stock exchange) or the S&P 500.
Instead, the managers of these funds often have the flexibility to invest across asset classes, geographies, styles and other investment managers. The ultimate goal is to create a flexible range of investment instruments that can seek out growth opportunities as the market environment changes, while carefully managing risk. Many also offer an attractive income.
Essentially, they take the decision of what and where to invest out of your hands – with managers having the potential to quickly adapt to markets as and when they need to. These funds can take different guises – some invest directly in stocks, while others build portfolios from other funds (this is a called a fund of funds approach).
But the proof is in the pudding – and the diversification tools and risk management skills of these multi-asset portfolios has proven a big hit with investors over the past couple of decades, with many becoming the bedrock of an investor’s portfolio.
In these trying times, here are five multi-asset funds investors may want to consider.
Take the emotion out of investing…
1) M&G Episode Income invests directly in individual stocks and bonds, while property exposure is achieved by investing in property funds. The name ‘episode’ refers to those periods of time when investors’ emotions cause them to act irrationally and thereby open up opportunities for those who can put their emotions aside. Manager Steven Andrew uses behavioural finance to find pockets of value and invest against the herd, rather than following it.
The income specialists…
2) Aegon Diversified Monthly Income managers Vincent McEntegart and Jacob Vijverberg decide how much to allocate to equities, fixed income, property, and specialist income sectors (such as infrastructure and renewable energy) to spread the risk and balance the sources of income in this portfolio. The fund targets an attractive yield (around 5% per annum), which is paid monthly.
3) VT Momentum Diversified Income looks to produce a high level of regular income, with the prospect of preserving the real value of capital in the long-term. The managers have a value-focused style and will invest across all asset classes including UK and overseas equities, fixed income, property and specialist investments held through third-party funds.
The great all rounder…
4) LF Ruffer Diversified Return may sit in the absolute return sector, but it is very much multi-asset in nature. The fund aims not to lose any money on any 12-month rolling basis, with a strong emphasis on providing genuine protection in times of market stress by investing across equities, bonds, derivatives and currencies. The strategy has an exceptional long-term track record and has historically outperformed in volatile periods – such as the dot.com bubble, the credit crunch and, most recently, the global pandemic.
The fund of funds specialist…
For one-stop shops, Jupiter has one of the best multi-manager, multi-asset teams around. It seeks to take advantage of short-term market movements that create opportunities and also take defensive measures where appropriate. The team uses its expertise to select who it believes to be the best fund managers in each asset class and region, with the aim of producing the best possible returns in “any given macroeconomic environment”.
5) Jupiter Merlin Balanced fund is one of the range. It can have between 40-85% in equities and aims to provide capital growth and a decent level of income.
Darius McDermott is managing director of Chelsea Financial Services & FundCalibre