Multi-asset, multiple fees

Posted by Robin Powell on September 14, 2016

I’m not a big fan, to put it mildly, of multi-asset funds, so it came as no surprise to me that latest research on this subject has concluded that these heavily marketed products are “systematically damaging” investors’ returns.

FinalytiQ assessed 65 different multi-asset fund ranges, based on charges, performance and the financial strength of the funds’ parent companies. The vast majority — no fewer than 58 of them — rated either fair of poor. Only one rated as excellent value for money, namely Vanguard’s LifeStrategy range, which is entirely passively managed.

The idea of an actively managed multi-asset fund is, on the face of it, very appealing. They’re billed as a simple option — a convenient, one-stop shop that offers broad diversification across a range of different asset classes. And there’s nothing wrong with that. Investors should most definitely diversify; they should also look for simple solutions, so if you can achieve the results you’re looking by investing in a single fund, that’s fine.

But there are two big problems. Multi-asset funds come at additional cost — particularly so-called funds of funds, which layer fees on top of fees. The long-term impact of compounded fees usually makes these funds a very expensive option.

The other problem, simply, is that the performance of multi-asset funds very rarely matches up to the PR surrounding them. The impression consumers are given is that by owning one of these funds, they’re harnessing the skills of a whole team of highly talented experts in their field. But, as the FinalytiQ report found, many of the managers these funds use are “genuinely unskilful”.

To quote the report, most multi-asset funds “systematically reduce clients’ odds of accomplishing their objectives.. To managers it’s simply money, but to clients their assets represent their hopes and dreams, their retirement funds and their legacy to their children and grandchildren.”

Quite. No investor should be pinning their hopes on expensive multi-asset funds.

The full report is aimed at investment professionals and is available here.

 

Related post:

Multi-manager funds — Who needs ’em?

Robin Powell

Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.

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