Have Low-Equity Multi-Asset Funds Lost Their Mojo?

With investors losing faith in the sector, which pitfalls should specialists avoid when they make asset allocation decisions?

- Duane Cable

Low-equity multi-asset portfolios aim to provide investors with capital growth by delivering inflation-beating returns, while balancing the need for capital preservation. Unfortunately, only a few specialist managers have been able to deliver on these objectives over the last five years and investors are now losing faith in the sector.

In addition to relative underperformance, the large drawdowns experienced across the multi-asset sector during the Covid-19 crisis has led many to question the ability of these funds to deliver on their objectives to preserve capital following the market collapse in March 2020.

It is understandable that investors have been losing faith as the average fund in the low-equity category has underperformed cash over the last one, three and five years. This has not been the case for a limited number of multi-asset low-equity funds, including the Ninety One Cautious Managed Fund, which has managed to outperform the peer group and inflation over all the above performance periods; and cash over one, three and ten years, net of fees.

While security selection is important, asset allocation is one of the most important decisions in investments and getting it wrong has contributed to poor returns for the average fund in the sector. There are some pitfalls which asset managers could avoid when making allocation decisions.

Do not make investment decisions looking at the rear-view mirror