AI view: can multi-asset funds retain their edge?
AsianInvestor’s editorial team set out this month to answer 10 key questions for the Year of the Monkey, having consulted a range of industry experts.
Here we present our response to question number nine, which looks at the prospects for multi-aset funds. Our earlier predictions are available by clicking on the picture below. The feature appears in full in the February issue of AsianInvestor magazine.
Question 9: Will multi-asset products be eclipsed by a new trend?
There is a strong argument that multi-asset funds will come under pressure this year amid rising asset class correlation, with volatility and uncertainty expected to drive traditional markets down together. Such correlation negates the benefits of diversified products.
Moreover, multi-asset products whose objective is income – which has been highly sought after in Asia – depend on risky securities such as high-yield bonds and emerging-market equity and debt to achieve their objectives. But with US junk bonds so heavily exposed to the energy sector and emerging markets so sensitive to a strong and rising dollar, the outlook looks very challenging for these all-weather funds.
Then again, you could just look at the flow figures. Allocation funds attracted $122 billion in net new assets globally over the past three years, by Morningstar data. That was above all other asset classes. Drill down a bit further and it appears poor fund performance does not necessarily equate to negative asset flows. BlackRock's Global Multi Income Fund (HKD) returned -1.61% last year but attracted an estimated $1.7 billion, finds Morningstar. Similarly BlackRock's Global Allocation Fund returned -2.27% but gleaned more than $1 billion.
It was only in Asian allocation funds that negative returns correlated to net outflows. The case for them is being tested as they are so exposed to emerging markets. But the strength of managers' marketing machines to highlight the dynamic capabilities of multi-asset funds means they will continue to outshine other asset classes from a fundraising perspective.