The purpose of multi asset funds

si2winit

I’ve been looking at a couple of multi asset funds for a partial switch of my stakeholder. These are growth funds with between 60 and 80% equities an active/passive and an active/active.

However looking at the last 5 years the global trackers have outperformed them in every way. Now, are these funds designed to provide steady growth potentially in mild downturns? Or simply to reduce volatility?

Such as stead 4 to 7% growth annually where a global equity fund can be anything from in the minuses up to 15%.” Etc.

Suppose I could sum up my question.... are multi asset funds only going to show their value in the next downturn/recession?

Bimbly

Multi assets usually contain bond funds too. That's how come they're multi asset.

In good years (such as recently), a global equity fund will pretty much always perform better because it is all equities.

In bad years, a global tracker will be hit hard when equities fall. But the multi asset fund will not drop so much because it is cushioned by the safer bonds in the fund.

In general.

Global equity fund = higher risk with potential higher returns.

Multi asset fund = reduced risk with reduced liklihood of losses in a downturn

dunstonh

However looking at the last 5 years the global trackers have outperformed them in every way.

You would expect that. It is like comparing a sports car with an everyday hatchback.

A global index tracker can lose 50% of its value in a major crash. A mixed 60% equity fund would be closer to 25% loss in the same period. As the last 5 years have been mostly growth, then you would expect the higher risk funds to have done better.

Suppose I could sum up my question.... are multi asset funds only going to show their value in the next downturn/recession?

Can you handle your pension fund falling by half its value? Most in the UK cannot. That is where multi-asset funds come in.

si2winit

Thanks for the replies, I could handle the downturn at the moment as I’m 36, but thinking of putting a 3rd of my fund in a multi asset fund with the rest in a global equity tracker to reduced a little of the volatility. I could go 100% equities, but my general feel is to safeguard a portion and if there is a major downturn I’ll chuck everything back into equities. Maybe overthinking it though!

enthusiasticsaver

As others have said you can not compare a global tracker investing 109% in equities to a multi asset fund which includes bonds to reduce volatility. If you are investing for the long term and won't panic if the market drops considerably then investing in a global tracker is fine. If you would panic and sell out if your investments drop you need something which is not so volatile and a multi asset fund with a percentage of bonds will fill that need.

bostonerimus

Multi-asset funds give the investor a simple way to have a diverse portfolio in a single fund that is roughly matched to their risk profile. Their mix of equities and bonds will be reflected in their returns.

I think many people believe that maxing potential return is a good way to design a portfolio....it isn't. You should be looking to maximize the probability that your returns will allow you to meet your financial goals with the minimum of risk.