Tactical or strategic?
Multi-asset funds should be a mix of tactical and strategic decisions, experts believe.
According to Mr Harman, as the opportunities within multi-asset is vast and wide ranging, “multi-asset portfolios should have a foundation based on economic fundamentals in the asset allocation, but also take into account the short-term opportunities in markets”.
First State reviews the longer-term asset allocation of the fund twice a year, or more often if needed, as it was with Brexit.
He added: “Our dynamic asset allocation takes into account the shorter-term market dynamics to deliver additional returns and abate portfolio risks, such as tail events.
“This part of the process is reviewed more regularly and aims to take advantage of possible dislocations in financial markets.”
Mr Sweeney also agrees that multi-asset should be both strategic and tactical in terms of asset allocation.
He said: “Strategic asset allocation is essentially the medium to long term view on markets. This forms the backbone of our multi-asset risk profiled funds.
“As an example, in 2017 we were in a low interest rate, low volatility world and our portfolios had a strategic positioning towards income funds in portfolios.”
Nevertheless, he argued that the strategic asset allocation should evolve over time.
“There are instances where there is a wholesale change in market direction so tactical decision making is required,” he noted.
However, tactical decisions are not knee jerk reactions to daily or weekly fluctuations in the market.
Mr Sweeney said: “We have an asset allocation process that enables us to implement tactical asset allocation views on a short to medium-term basis.
“However, we have a rigorous research process to ensure these tactical decisions will lead to well thought out investment decisions. We have to be able to explain clearly all of our investment decisions in a very succinct manner.”
Mr McDermott argued that the balance between tactical and strategic is “ultimately about adding value for the end investor”.
He said: “If a multi-asset manager is investing strategically – ie, they have a lower turnover portfolio – then perhaps there is less pressure on them to generate returns as high as those which invest tactically and therefore incur higher charges.
“That said, if a tactical multi-asset fund generates consistent and strong returns for the end investor, then I would regard that as an attractive fund.”
Mr McDermott concluded: “It isn't all about the cost of a fund – it's about whether the quality of the returns you get from a fund justify the charges you are paying.”
