A promise of attractive returns combined with an acceptable risk. This is what the majority of investors are looking for. However, the investment risk also depends on the strategy in question. Multi-asset offers many investors, even those who tend to be risk-averse, a solution to this seemingly squaring of the circle. In retrospect, these products have achieved an unimagined popularity in their respective forms. Particularly in times of crisis, a broad diversification can limit losses. In recent weeks, the MainFirst Absolute Return Multi Asset has succeeded in doing so with above-average success, partly due to its focus on structural trends.
After years of largely uninterrupted upswing and rising prices on the international equity markets, some of the euphoria abruptly vanished with the outbreak of the coronavirus pandemic. The global economy has been hit hard by the most severe crisis of the post-war period and its consequences.
Nevertheless, it is important to note that the courageous intervention of governments and central banks in particular was able to calm the waves on the financial markets. The equity markets are holding up surprisingly well, given the severity of the economic crisis. The DAX, for example, has now risen by around 2,000 points since its low on 18 March. And the VIX Volatility Index, the equity market's “Fear Gauge”, has also fallen sharply, after it had risen to previously unrecorded levels in the wake of the coronavirus crash. Therefore, the equity markets per se remain interesting for investors in search of returns.
But who wants to take on more or less full risk at this point in time? The reduced economic prospects, growing mountains of debt and, of course, the virus continue to hang over us like a sword of Damocles. In this regard, the capital markets are posing major challenges for all financial players as a result of the coronavirus crisis. Investors expect answers to their questions. Diversification could be the watchword of the day.
So-called multi-asset funds are popular with many investors. According to BVI statistics, at the end of 2019/beginning of 2020, the assets under management of the second largest group within open-ended mutual funds amounted to approximately EUR 311 billion. This corresponded to a respectable 28 percent market share, directly behind equity funds. By way of comparison, in 2010, this type of fund had a 12.5 percent share of the European assets under management. From that point on, multi-asset funds recorded extremely high inflows. This growth was primarily at the expense of equity funds. How can this development, which was particularly remarkable in 2018, be explained?
Diversification as an anchor for returns
As multi-asset funds are flexibly invested, their risk is broadly diversified. Diversification across different asset classes, investment styles, sectors, and countries or currency areas enables fluctuations in the respective individual investments to be balanced out. This means that the probability of incurring a significant loss is lower in a portfolio with many different assets than for portfolios that, for example, only invest in equities or bonds. This is also a key differentiating feature compared with the classic mixed fund, which is solely dependent on the developments on the equity and bond markets.
This idea of the broadest possible diversification is not new and has been continuously developed. The primary objective, particularly in these difficult times, is to develop more robust portfolios that can perform well in a volatile market environment characterised by a complex mix of opportunities and challenges. After all, there is an old adage on the stock market that says you should never put all of your eggs in one basket. In this regard, multi-asset funds can be interesting for investors who want to generate returns despite market fluctuations, without taking on too much risk. It is the responsibility of the fund management to react flexibly to short-term market movements and, as a result, take advantage of opportunities and mitigate risks. A strategy for successfully navigating through the crisis. A look at our theme-based multi-asset fund shows how this theoretical construct can be implemented in practice. The MainFirst Absolute Return Multi Asset uses a broadly diversified investment structure of equities, bonds, currencies, and commodities. There is no geographical limitation; instead, the fund management emphasises the global investment approach and remains committed to its focus on structural growth trends. This focus aims to generate a steady increase in value in the medium and long term as part of the absolute return strategy. The investment philosophy - broad global diversification across the spectrum of different asset classes, in combination with promising investment themes - not only delivers returns but also demonstrably reduces risk. Since its inception exactly seven years ago (30 April 2013), the MainFirst Absolute Return Multi Asset has achieved a cumulative performance of 28.3%* and 3.6%t* per annum (as of 30 April 2020, ISIN LU0864714935).
Authors: Adrian Daniel, Frank Schwarz, Patrick Vogel, Jan-Christoph Herbst, Johannes Schweinebraden, fund managers of MainFirst Absolute Return Multi Asset, MainFirst Global Equities Fund & MainFirst Global Equities Unconstrained Fund
* Past performance cannot be taken as a guarantee of future performance. The performance is calculated in EUR and according to the BVI method, considering all costs and fees with the exception of the entry charge.