The rise of Multi-Asset

Against a backdrop of volatility and regulatory change, we’ve witnessed a shift within the offshore component of portfolios away from global equity allocations towards multi-asset strategies. Additionally, we have seen an increased importance on technology to help financial advisers and their clients.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

The global investment market has evolved over the past five years, with both independent financial advisers (IFAs) and self-directed retail investors increasingly adopting risk-managed balanced portfolios.

Global assets under management in the Investment Association Volatility Managed and Mixed Asset sectors grew from USD $200bn at the end of May 2019 to $295bn at the end of February this year.¹ South African Multi Asset portfolios attracted R51 billion in net inflows in 2023.²

Alongside these flows and the relaxation of Regulation 28 constraints, the new macro market regime we have entered – prompted by the Covid-19 pandemic, increased geopolitical tensions and the resulting inflationary environment – has led advisors and investors to reassess their portfolio allocations.

Many are keen to outsource portfolio management to asset management experts who are well placed to navigate this new environment and who have global expertise. The popularity of multi-asset strategies has risen as a result.

Challenging times for IFAs

Financial advisers and wealth managers have endured an increasingly difficult backdrop in recent years. Economic pressures and legislation have created additional compliance pressures and work for advisers. While the industry and clients have welcomed increased fee transparency and downward pressure of product fees, advisory businesses have also seen day-to-day operational costs rise.

To counteract some of these pressures, many advisers have been looking for ways to free up time to play to their strengths and add value for their clients. They want to focus on providing personalised customer support that differentiates them from competitors and helps their clients meet their investment goals. Outsourcing investment management to a third party can help. Rather than spending time calculating optimum equity and fixed-income allocations, or fine-tuning economic forecasts, advisers can instead focus on wider concerns of financial planning.

Risk-based multi asset funds

Risk-based multi-asset approaches enable clients to diversify their portfolios while staying within risk-tolerance levels. This characteristic is proving increasingly popular with clients and their advisors globally.

Risk: Diversification and asset allocation may not fully protect you from market risk.

Risk-based multi-asset funds give advisers access to a range of investment funds. Outsourcing investment management into these funds could bring several benefits for advisers:

• Multi-asset diversification: investments are made across a broad range of asset classes, which could help in reducing overall portfolio risk.
• Cost effective: many funds are invested in ETFs and index funds. Lower costs mean potential better net returns for clients.
• Tailored risk profiles: advisers can select funds according to clients’ risk profiles, goals and circumstances. These are then actively managed by fund managers to ensure consistent risk levels.
• Professional management: asset allocations can be adjusted to suit changing market conditions. This more active ‘hand on wheel’ approach could ensure the risk profile remains appropriate, in contrast to a ‘set-and-forget’ strategy.

Risk: There can be no guarantee that the investment strategy can be successful and the value of investments may go down as well as up.

Global knowledge – local expertise

How does BlackRock’s structure help drive positive client experiences with their multi-asset funds? Much is due to the firm’s focus on risk management – particularly on rewarding risk across different funds. But it also comes down to deep expertise, BlackRock’s investment teams can draw on extensive research and expertise to inform allocation decisions. BlackRock seeks to enable IFAs to give their clients the stability and growth they need to meet their financial goals.

Sources:
¹ Morningstar 02/04/2024
² Statista 02/04/2024