Mixed investment strategies topped the best-selling Investment Association (IA) sector lists in February, but with a UK election on the horizon and uncertainty over Brexit, it is likely more investors will start to focus on the income aspects of these vehicles.
There are 31 funds with a 12-month track record to April 20 2017 that have multi-asset or multi-manager income as a focus, according to FE Analytics. While these are scattered across a number of sectors, the average performance of these vehicles is positive across one, three, five and 10 years.
The mean five-year return of 42.5 per cent is ahead of the average returns of the IA Targeted Absolute Return, Mixed Investment 0-35% Shares and Mixed Investment 20-60% Shares groups in the period, and just lags behind the 48.8 per cent average of the Flexible Investment sector and the Mixed Investment 40-85% Shares category’s 49.4 per cent.
Nick Samouilhan, multi-asset manager at Aviva Investors, suggests that income can be hard to find when focused on just one asset class, as equity prices have increased in key developed markets while dividend yields remain at relatively low levels globally.
“Emerging markets look interesting both in terms of equities and debt on a selective basis,” Mr Samouilhan says.
“Both South African and Indonesian government bonds are examples of where yields appear attractive given the risk profile. There are also opportunities in emerging market equities. Take South Africa: although the country continues to encounter political turbulence, it is home to some well-run firms that generate high sustainable and growing returns.”
Paul Flood, lead manager of Newton’s Multi-Asset Income strategy, says: “With fiscal policy now firmly back on the agenda, the UK is clearly moving away from a deflationary environment. Within a multi-asset portfolio, inflation protective exposure can include assets such as renewable energy and infrastructure, which have very little sensitivity to the economic cycle, but which also have strong contractual obligations to provide inflation-linked revenues.
“If you are looking to save, you have to protect your assets against the potential ravages of inflation. Unlike cash and most conventional bonds, assets with inflation-linked contracts are therefore very attractive for long-term savers.”
Meanwhile, Steven Andrew, multi-asset manager at M&G Investments, notes that while the low-yield environment has encouraged some investors to “climb the risk spectrum”, there are “plenty of opportunities around the world to generate both income and growth, without having to overreach for yield”.
Valentijn van Nieuwenhuijzen, head of strategy, multi-asset, at NN Investment Partners, agrees opportunities are still available in asset classes, sectors and regions that benefit from a stronger global growth backdrop.
“Geopolitical worries due to uncertainty surrounding the French elections and a possible US-North Korea conflict are weighing on growth assets, but once that fades equities, real estate and commodities offer nice return opportunities,” he says.
“This might change if some of the tail risks surrounding these events materialise, and then multi-asset investors will have to adapt their strategies.”
