Some of the most vindicated fund managers in a lacklustre year for markets are those running dynamic multi-asset funds.
Funds run by the likes of Aviva Investors, Invesco, Schroders and Standard Life Investments are in line for a string of institutional wins by the end of the year.
All lived up to their promise in August, when share markets everywhere saw sharp falls and the ASX 300 was down 7.7 per cent.
By contrast these multi-asset funds saw returns of between -1.36 per cent and 0.23 per cent, which was notably better than the HRFX Global Hedge Fund Index, which fell 2.2 per cent in August.
Such funds are usually pitched along the lines of “equity-like returns with half the volatility”, with a caveat that they will lag equities in bull markets, but will not fall so far in large downturns.
This is not far off the pitch of the more cautious super funds such as Equip. Which begs the question, if large funds can already achieve such a strategy why would they need to access a dynamic multi-asset fund?
An audience at the AIST ASI conference in early September heard Dr Zoe McHugh, an investment strategist at First State Super, tell of how the use of multi-asset managers at the $50 billion fund will increase to 10 per cent for reasons of a) liquidity b) low fees (50–80bps) c) the high prices of alternative assets and d) the investment ideas it gives an insight into.
This is an interesting shift of demand as previously, these funds have been adopted largely for their offer of returns with low volatility; which suit pension funds such as the newly rebranded StatePlus, or retail funds such as the Aon Master Trust where the liquidity is valuable.
At the same presentation at which McHugh spoke, Jeffrey Chee, head of investment strategy, Australia and Asia Pacific, Towers Watson, said he would be happy to see clients invest up to 10–15 per cent of their portfolios in such funds.
As a measure of this endorsement, the 15-month-old Aviva Investors Multi-Strategy Target Return Fund is soon to announce its first major superannuation fund investor even without building up much of a track record. The fund is being sold largely around the reputation of Euan Munro, who launched the stratospherically popular Standard Life Investment Global Absolute Return Strategies fund in 2005 (which currently runs over US$40 billion).
The Aviva fund draws on the resources of three lead portfolio managers and a further 33 investment staff. One of the senior staff, Ian Pizer, head of investment strategy, was in Australia last week to promote it.
The fund was down 0.5 per cent in August and up by the same amount in September, but Pizer’s favourite story was how its short position on the Euro paid off more than any other bet in 2015, after the Swiss removed the floor on the Euro versus the Swiss franc — the country had previously been one of the biggest buyers of the Euro to maintain this peg.
This highlights one of the biggest marketing coups for such funds. For most of us the above position sounds to all intents and purposes like the trading of a hedge fund. But these dynamic multi-asset funds with their big fund manager backing, daily liquidity and equity fund-like pricing avoid all the baggage that goes with hedge fund investing.
Pizer says that a big chunk of the interest he is seeing is from investors who might otherwise have chosen a fund of hedge funds, who want the diversification but baulk at the fees.
My hunch is that the longer we see lower returns and high volatility the more ubiquitous these multi-asset funds will become.
