This can be achieved by carefully selecting a range of funds that provide access to equities, bonds and alternative assets such as cash or property.
However, taking the time to research each individual fund can be an arduous task, so FE Trustnet asked industry experts for their favourite multi-asset funds that offer investors a ready-made diversified portfolio.
Here are their top-five:
Cazenove Multi-Manager Diversity
Gemmell’s Chris Wise is a big fan of using funds of funds. Rather than investing in individual stocks and shares, these vehicles invests in other investment funds. One of Wise's favourites is Cazenove Multi Manager Diversity, which is part of the Cazenove Multi Manager range.
"One of the funds I am a fan of and have recommended for some time is Cazenove Multi Manager Diversity," he said.
| Name | Cazenove Multi Manager Diversity |
|---|---|
| Fund Size | £996.5m |
| Min. Investment | £5,000 |
| TER | 1.80% |
| Yield | 0.60% |
| Manager | Marcus Brookes and Robin McDonald |
| FE Crown Rating | 3 Crowns |
Source: FE Analytics
"This is partly down to the fund’s investment process where they typically have a third in equities, a third in fixed income and third in alternative investments."
"That means – because of the house view – it is already diversified, so it is then up to the management team of Marcus Brookes and Robin McDonald to decide what level of risk they want to take with those assets."
"If they are extremely bearish they could have a high cash weighting or if they are positive they could be fully invested across the asset classes."
"The fund has done what it says on the tin in many respects, plus Brookes and McDonald have got their macro calls right more often than not."
According to FE Analytics, the £996.5m Cazenove Multi-Manager Diversity fund has been a top quartile performer over the last five years in the IMA Mixed Investment 20-60% Shares sector.
Performance of fund vs sector over 5yrs
Source: FE Analytics
It has achieved this with a much lower level of volatility.
The fund’s highest sector weighting is in alternative assets, which includes the likes of M&G Optimal Income and Fidelity Special Situations.
M&G Episode Income
"Another fund I like is the M&G Episode Income fund," Wise added.
"The manager – like many others at M&G – has been very good on his macro calls."
"Although M&G Episode Income hasn’t got a three-year track record, its one-year numbers are good. If you look to get your returns from the Cazenove fund, then the M&G fund is a good place to get your income."
"It doesn’t really have a multi-asset focus like Cazenove Multi Manager Diversity."
"However, as it sits in the IMA Mixed Investment 20-60% Shares sector, it is already driven by its weight cap. Overall, the two funds complement each other well and are a good way to diversify your portfolio."
| Name | M&G Episode Income |
|---|---|
| Fund Size | £121.9m |
| Min. Investment | £500 |
| TER | 1.53% |
| Yield | 3.66% |
| Manager | Stephen Andrew |
| FE Crown Rating | N/A |
Source: FE Analytics
As well as recommending the fund to his clients, Wise told FE Trustnet recently that he has bought M&G Episode Income for his pension.
Since its launch in November 2010, the £121.9m M&G Episode Income fund has returned 19.41 per cent while the sector has returned 11.36 per cent.
Performance of fund vs sector since Nov 2010
Source: FE Analytics
The fund currently holds 43.5 per cent in equities, 46.9 per cent in government and corporate bonds and 8.3 per cent in property. It invests directly in stocks and shares rather than holding other funds.
Rathbone Multi Asset range
Chris Mayo, investment director at Wells Capital Investment Solutions, likes the Rathbone Multi Asset funds because they do not attempt to beat a benchmark.
"In each of those funds they do it a little differently than most, as they have both a return target and a target for volatility," he said.
"Instead of trying to beat a sector, the fund aims for target controlled volatility – which is something I like."
The range includes the Rathbone Multi Asset Enhanced Growth, Strategic Growth and Multi Asset Total Return Portfolios – all of which are funds of funds, and headed up by FE Alpha Manager David Coombs.
The largest of these is the £59.2m Rathbone Multi Asset Strategic Growth Portfolio.
| Name | Rathbone Multi Asset Strategic Growth Portfolio |
|---|---|
| Fund Size | £59.2m |
| Min. Investment | £1,000 |
| TER | 2.33% |
| Manager | David Coombs |
| FE Crown Rating | N/A |
Source: FE Analytics
The fund was launched in June 2009 and has returned 41.28 per cent since then. It has a relatively low annualised volatility of 8 per cent over the period.
The fund does not have a specific benchmark and sits in the IMA Unclassified sector, making comparisons with its peers difficult. However, the sectors' funds it most closely resembles are the IMA Mixed Investment 20-60% and IMA Mixed Investment 40-85% Shares.
Performance of fund vs sectors since June 2009
Source: FE Analytics
Rathbone Multi Asset Strategic Growth has slightly underperformed against the IMA Mixed Investment 40-85% Shares but beaten the IMA Mixed Investment 20-60% Shares sector over that time.
The fund currently holds just over 50 per cent in international equities and 19.26 per cent in fixed interest assets.
Neil Shillito, director at SG Wealth Management, is also a fan of Coombs’ funds, because of the manager's approach to volatility.
"I like his style whereby he wants the least amount of correlation from the funds he invests in whether that’s in equities, bonds or currency," he said.
TM Darwin Multi Asset
Shillito continued: "Another one I like is David Jane’s Darwin fund. David has a very good long-term track record. He left his head of equities post at M&G about two years ago and set up this new fund."
"It has already made good strides over that time and we support the fund by holding it as a part of our OEIC."
| Name | TM Darwin Multi Asset |
|---|---|
| Fund Size | £19m |
| Min. Investment | £1,000 |
| TER | 1.74% |
| Manager | David Jane |
| FE Crown Rating | N/A |
Source: FE Analytics
The £19m TM Darwin Multi Asset fund has returned 9.91 per cent since its launch in May 2011. This beats the IMA Mixed Investment 20-60% Shares sector, which has returned 8.57 per cent over the same period, meaning the fund ranks in the second quartile.
The fund counts US Treasuries, investment trusts and equities in its top-10 holdings. Overall, the fund has a 51 per cent weighting to equities, 21 per cent in fixed income and 13 per cent in the money market.
As Shillito pointed out, Jane previously managed funds at M&G.
Performance of manager vs peers over 10yrs
Source: FE Analytics
Over the last decade, Jane has beaten his peer group composite by more than 25 percentage points.
Premier Multi Asset range
Shillito also points to the Premier Multi Asset portfolios as being useful for investors.
The range includes Premier Multi Asset Distribution, Premier Multi Asset Growth, Premier Multi Asset Income & Growth and Premier Multi Asset Monthly Income.
The largest of these is the Premier Multi Asset Distribution fund.
| Name | Premier Multi Asset Distribution |
|---|---|
| Fund Size | £131.9m |
| Min. Investment | £1,000 |
| TER | 2.25% |
| Yield | 4.44% |
| Manager | Ian Rees, Davd Hambidge, Simon Evan-Cook |
| FE Crown Rating | 5 Crowns |
Source: FE Analytics
Ian Rees has managed Premier Multi Asset Distribution since 1999 and he was joined by David Hambidge in 2001 and Simon Evan-Cook in 2008.
The fund’s longer-term track record is mixed: it is a third-quartile performer in the IMA Mixed Investment 20-60% Shares sector over five and 10 years.
However, more recently the fund's fortunes have changed. It is a top-quartile performer over the last three years, with returns of 26.53 per cent. However, it has been more volatile than the sector.
Performance of fund vs sector over 3yrs
Source: FE Analytics
The fund of funds counts other portfolios such as Royal London Corporate Bond and Schroder Income Maximiser in its top-10 holdings.