Next-Finance : Why multi-asset fund launchings become numerous now? Is it due, in your opinion, to the effect of an emerging trend or to a real need from investors?
Aymeric Poizot : Multi-asset fund launchings have recently become numerous in response to the financial crisis that began in late 2007, which led, from investors, to an increased need for active portfolio management, in a choppy financial environment suffering from no real directional trend. This is why this is not a fad, but rather an asset management style which is able to protect the investor capital against bearish periods, while allowing it to grow over medium to long term, with a relatively moderate volatility. A relevant example is the fact that most asset management companies in France offer now this asset management style to their clients.
What are the different styles of multi-asset funds and in which asset classes tend to invest these funds?
It is possible to divide multi-asset funds into three categories:
A style based on stock picking, but which actively manages market exposure,
The conversion of diversified funds into multi-asset funds, through expanding allocation possibilities between the various asset classes,
Finally, an "absolute return" style based more on quantitative allocation process.
In terms of asset classes, it is important to say that multi-asset funds are often very sensitive to domestic equity risk, even if, in theory, their portfolio may be exposed to other types of markets. Regarding this point, some multi-asset fund managers, looking for performance, do not hesitate to expand their fields of investment, to the High Yield or the U.S. equity markets, for example.
Multi-asset funds do not seem to generate asymmetric return profiles expected by investors and differ little from diversified funds. How do you explain that the performance of multi-asset funds are rather mixed, especially for 2011 as shown by your study entitled ("Fitch Special Report: Flexible Allocation Funds, 06-February-2012") where only one third of the multi-asset funds offered a capital protection - performance> -5% - and less than 10% of them exhibited a positive performance?
It is true that the average performance of multi-asset fund managers is disappointing, but it must be stated that for the good ones (first quartile of the category), the pledge is fulfilled either in terms of performance and in terms of asymmetric profile. In 2011, for example, on average, this style of asset management showed a negative return of about 9%, while it may be considered as a maximum, a 5% drawdown, in order to provide a capital protection.
In defence of fund managers, it should be say that the market environment has been particularly difficult in 2011, especially because of the fear of investors about the eurozone future. Those who play the game admirably well, are often the fund managers who developed a fundamental allocation in the bond market or used quantitative models as tools for decision support. In both cases, they have avoided chasing the market all the time.
How is it possible to distinguish the best multi-asset funds of others? What methods are used to protect against downward market trends?
Several methods allow to the best multi-asset fund managers to make the difference, even if, in my opinion, asset allocation is essential, to reduce quickly any risk exposure, for example, by taking a money market position or investing in German or American bonds. But that’s not all. The performance also comes from the ability of the fund manager to diversify its portfolio by investing especially outside the euro area, as the US market or the emerging markets for example. Finally, the best performing managers are those who are able take the risk to hedge a significant part of their portfolio, even if it means losing the bulk of a bullish trend if they are wrong.
Are multi-asset funds remain relevant in an asset allocation for an institutional investor? For a private investor? What is the future for this asset management style?
Yes, of course, multi-asset funds remain relevant in the current context, whether for an institutional investor or a private investor. For the first ones, there is a desire to diversify their investment toward this asset management style, in order to be protected againts downside market cycles through an asymmetric profile. This is more true for pension funds than for insurance companies. For private investors, multi-asset management makes perfect sense, as it offers a solution to the current instability of the different asset classe performances.
In my opinion, the multi-asset management style is a long-lasting asset management style, even if the different processes used in its implementation require some improvements. Anyway, it is clear that each asset management company will continue to offer it to its customers.
