From multi-asset to multi-strategy
Multi-strategy and multi-asset funds might sound similar, but they have important differences that may affect the role they can play in portfolios to provide the outcome desired.
Both types of funds invest across a range of asset classes in attempts to produce better risk-adjusted returns than typically available by investing in one asset class. The managers of both investment approaches take a view on how financial markets are likely to perform and allocate funds accordingly. Multi-asset funds do so mixing asset classes, raising exposure to one at the expense of another.
While the managers of multi-strategy funds also take a view on where the world is going, they focus on identifying very specific investment opportunities that will benefit best from their forecasts. The implementation of strategies to take advantage of these opportunities is done with a high degree of precision. This precision and focus opens up a wider range of investment opportunities to portfolio managers, offering greater scope for diversification. Multi-strategy funds are inevitably more complex than multi-asset funds but they can also offer important advantages.
Multi-strategy funds use financial instruments in gaining exposure to markets that are frequently unavailable to multi-asset funds. They can also look to profit from rises or falls in markets when attempting to perform well in all investing climates. Importantly,
returns tend to be relatively uncorrelated to equities, bonds and other asset classes. Swings in asset prices have been far more correlated than typically seen before 2008, so limiting the effectiveness of traditional investing approaches driven by asset allocation.
Fresh Approach
It may seem difficult to rely on shares for long-term capital growth with valuations looking expensive on most long-term measures. There are also doubts over how much protection bonds will afford in the event of a market sell-off.
Multi-strategy funds offer hope to those wanting to grow their capital or generate income in a world of low yields. They look to achieve their targets by combining a diverse range of strategies with different drivers of performance. The Aviva Investors Multi-Strategy solutions are not constrained by a benchmark, are not dependent on ideas linked to the economic cycle and can deploy tools that exploit falling and volatile markets.
When constructing funds we assess how much we expect each individual strategy will add to the total return and its impact on overall risk. We also assess the anticipated ease of exiting the position.
The Nuts and Bolts of Multi-Strategy Funds
Markets react quickly to events, often in an illogical manner. Sentiment can thus shift suddenly and sharply. In our multi-strategy solutions, we ignore short-term, headline grabbing developments and focus instead on spotting mispriced investments with attractive risk-adjusted prospective returns over a three-year investment horizon.
The way the strategies in a multi-strategy fund are expected to interact across a range of market conditions is crucial to managing a fund’s risk exposure and meeting objectives. The AIMS solutions combine three types of strategies, with each playing a different role and in combination help achieve the strategy’s objective. The first group seeks to provide a positive return when markets perform as we expect. The second aims to exploit opportunities arising from market inefficiencies. The last one provides a performance stabiliser, aiming to boost returns when markets do not behave as anticipated without harming performance when they do.
We aim to combine these strategies in such a way that we can deliver equity-like returns for less than half the risk of equities. The diverse forward-looking strategies and flexibility offered by multi-strategy funds mean they may provide the outcomes you desire, whether that be capital appreciation or steady, monthly income.
Important Information:
Unless stated otherwise, any sources and opinions expressed are those of Aviva Investors Global Services Limited (Aviva Investors) as at 26 April 2016. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested.
Issued by Aviva Investors Global Services Limited, the Investment Manager to the Fund registered in England No. 1151805. Registered Office: No. 1 Poultry, London, EC2R 8EJ. Authorised and regulated by the Financial Conduct Authority and a member of the Investment Association. Contact us at Aviva Investors Global Services Limited, No. 1 Poultry, London EC2R 8EJ.