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MES Insights

Our expert insight into UK pension and retirement topics

What are Multi Asset funds

Posted by Technical team on Oct 23, 2018 4:46:48 AM

When it comes to choosing investments, there are lots of different types of assets that you can invest in.

The four main traditional asset classes have been Shares (also known as Equities), Property, Bonds and Cash.

These assets classes can then be divided into further sub classes. For example, bonds can be split into government or corporate bonds, shares can be split by company size (market capitalization) or location such as developed markets or emerging markets.

There are also now new asset classes such as commodities and currencies which are now widely available to retail investors.

With investments, diversification is key. We have all heard the term “Don’t put all your eggs in one basket”. In investment terms, this would mean don’t put all your money into one investment, like buying just Facebook shares, or a fund that just buys government bonds in emerging markets.

In order to achieve a diversified portfolio of investments, previously investors would have had to buy a fund for each asset class or sub class and decide how much to allocate into each fund. If they wanted to change the allocation, they would have to sell part of a fund and buy more of another.

This meant that to maintain a diversified portfolio, you would need to take an active role in managing it and have the resources to be able to buy and sell investments at a reasonable cost and good timing.

For investors who want a diversified portfolio but without the hassle of managing it, multi asset funds are a way of spreading your investments over lots of different asset classes without having to buy lots of different individual investments. You just use one fund and then the fund manager decides how to spread your investments over the different asset classes.

The amount allocated to each asset class will depend on the risk profile of the fund. For funds that are more cautious and low risk, a large amount of the fund will be allocated to low risk assets such as government bonds, with only a small percentage allocated to shares. For more adventurous funds with a higher risk profile, the majority of the fund will be invested into shares.

Where the fund manager decides to invest your money is known as the asset allocation. Research has proven that the majority of investment returns actually come from the asset allocation and being invested in the right assets at the right time, rather than the actual asset performance itself.

All asset classes go through ups and downs and fund managers will try to invest the fund into assets that are rising in value and out of assets that are falling.

In theory, assets classes should be negatively correlated or not correlated at all. An example of negative correlation for shares and bonds would be if shares were falling in value, at the same time bonds would be rising in value. However, in practice it is not quite as simple or straightforward as that, so it is essential that you choose the right fund managers to make the investment decisions with your fund.

The MyExpatSIPP ready-made portfolios are made up of multi assets funds from Vanguard and BlackRock, two of the world’s largest investment managers. They provide you with diversification across asset classes, with the allocation managed by investment experts and all at a very low price.

 Find out more about our ready-made portfolios

Technical team

Written by Technical team

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