Thoughts on Multi-Asset Funds for 2018

tekton23

Hi,

I have read a few views that there are potential risks in investing in government bonds due to rising interest rates and also the US economy where assets (such as FANG) are seen as being hugely over-valued.

If you were to agree with this opinion, then this suggests that popular multi-asset funds such as the Vangaurd Lifestrategy range are not the wisest place to invest.

In which case, if going down the low fee, multi-asset fund route, where would you invest?

T23

ValiantSon

Unless you go for a 100% equities version then you will struggle to find a multi-asset fund that doesn't include government bonds. Going for a 100% equities fund would be well above the risk tolerance of most investors and self-defeating because of that. Vanguard do a 100% equities version of the LifeStrategy range.

A fund range like HSBC Global Strategy focuses its bond on holdings towards corporate bonds (but does still hold government bonds), and even then corporate bonds could be in for worse times with the prospect of rising interest rates.

sstteeww

You've just said "I'm timing the market with regards to bonds" and also "equities in the US are overvalued so I need to time the market with regards to these too".

So you've answered your own question, you're looking for a whole-world-ex-USA equity only fund (for now).

Good luck, I hope you're right (I have no way of knowing if you will be our not, and neither do you). I'd suggest you don't worry about these issues at all, select an asset allocation (equity/bond percentage based on your risk tolerance and not market timing) you're comfortable with and then hold this for the very long term.

TheLastMongoose

tekton23 wrote: »

In which case, if going down the low fee, multi-asset fund route, where would you invest?

T23

I don't know. As such I am increasing my cash savings for now.

BLB53

I have read a few views that there are potential risks in investing in government bonds due to rising interest rates and also the US economy where assets (such as FANG) are seen as being hugely over-valued.

It's not a good strategy to try to second-guess the markets. The likes of Apple, Amazon, Netflix, Google etc. could dominate the US market for the next decade so if you avoid, you will lose out.

Stick with you VLS and you will not go far wrong imho.

Linton

As Valiantson has said some multi-asset funds are currently investing more in safer corporate bonds rather than very safe government bonds. Presumably the fund managers believe that they will suffer less when interest rates rise, a view I would tend to agree with. They will also provide a better return in the meantime. The downside is that they offer less protection against a large stock market crash which could happen independently of the rise in interest rates.

I agree that the US market in general and the Fangs in particular which form a worryingly large part of it present a risk. However it would be wrong to base your allocations on current possibly short term circumstances. There is a wider problem in that a dominating % of your investments in any area is a risk independent of current circumstances. So I would suggest you allocate your investments so that US is below say 50%, my aim is 35%. You certainly shouldnt ignore the US completely as it includes a very wide range of industries and is a major part of the world economy.

The other thing to watch out for is that some multi-asset funds have a difficult to justify high % in the UK, in particular in the constituents of the FTSE100.

So for me these considerations rule out the VLSxx funds. The L&G Multi-asset funds have a very different asset allocation and may be of interest. But you arent going to find anything that ticks all the boxes. The only way of achieving that is to build your own portfolio which isnt what you want to do.

smjxm09

I think one of the key decisions is the amount of charges that are deducted. I have been looking at Aviva multi asset funds which comes highly recommended yet they charge up to a 5% entry fee and 1.34% yearly charges.

I have a multi asset low risk investment via the Halifax where there was no entry fee and the yearly charge is 0.45%. That fund has a growth rate since I took it out of 4.89%.

bowlhead99

smjxm09 wrote: »

I think one of the key decisions is the amount of charges that are deducted. I have been looking at Aviva multi asset funds which comes highly recommended yet they charge up to a 5% entry fee and 1.34% yearly charges.

Who do they come highly recommended by, with those sort of charges? Anyone independent?

However you may well find the 5% is a red herring because in practice the 'maximum entry fee' is not charged at 5%. It might be charged at less than 5% or much more commonly, not charged at all.

And when you refer to the "1.34% yearly charges" you are probably looking at the expensive 'class 1' version rather than the 'clean' version 'class R3'. According to Trustnet (https://www.trustnet.com/factsheets/o/gtvq/aviva-inv-multi-asset-iii-r3 ; click on 'all units') the expensive version is 1.32% OCF and 5% up front, while the R3 version you could buy through a fund platform is 0.57% OCF and 0% up front.

Meanwhile your Halifax fund at 0.45% will be the fund running costs ('ongoing fund charges') without the platform fee /service fee for which they charge you a separate 0.24% per year. https://www.halifax.co.uk/investments/our-investment-products/investment-account/) Other platforms are available of course, which might be cheaper as a percentage depending on the amounts invested.

I have a multi asset low risk investment via the Halifax where there was no entry fee and the yearly charge is 0.45%. That fund has a growth rate since I took it out of 4.89%.

Giving an example growth rate isn't particularly meaningful when the date range given is simply 'since I took it out'. Markets have been relatively benign to 'low risk' funds over the last decade or three.

economic

On a market cap weighted basis Tech makes up about 20% of the Us stock market. That does not mean its over valued. Many if not all of the companies are generating good earnings and many have decent earnings growth. Just because they make up 20% or they have gone up so much (which is why they make up so much a US tracker fund), doe snot mean they will not continue to perform.

If you do think tech is over valued, then just underweight it. But do so at the risk of missing out. Generally it makes sense to buy things that are shown by the market to be doing well. And shun things that are not doing so well.

Audaxer

bowlhead99 wrote: »

Meanwhile your Halifax fund at 0.45% will be the fund running costs ('ongoing fund charges') without the platform fee /service fee for which they charge you a separate 0.24% per year. https://www.halifax.co.uk/investments/our-investment-products/investment-account/)

I'm not sure whether this is part of the Halifax Share Dealing site, which has a fixed fee platform charge of only £12.50 per annum, and a much wider range of funds to choose from.

Alexland

Audaxer wrote: »

I'm not sure whether this is part of the Halifax Share Dealing site, which has a fixed fee platform charge of only £12.50 per annum, and a much wider range of funds to choose from.

No this is the Halifax Investment Account or ISA which is their simple ready-made retail offer. A bit like the HSBC World Selection this tends to be quite tame. The medium risk option is only 49% equities and has a very heavy UK bias - only 7.2% overseas equities.

https://www.halifax.co.uk/investments/our-investment-products/

Alex.