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3 Multi-Asset Funds Using Alternatives to Boost Returns

Morningstar fund analyst Randal Goldsmith explains what investors should be aware of when investing in alternative assets

Randal Goldsmith 2 August, 2017 | 4:33PM

 

 

 

Randal Goldsmith: Alternatives are a very diverse group. So, to understand the risk/return implications for multi-asset funds, you've got to look at the portfolio. Multi-asset fund managers include alternatives in their portfolios typically to reduce equity market exposure while maintaining attractive returns. However, while alternatives can reduce dispersion measures of risk, some of them, such as property, private equity, secured lending, can introduce more liquidity risk into portfolios.

 

Among Morningstar-rated multi-asset funds that use alternatives, Schroder Multi-Manager Diversity is among those with higher exposure. Currently, they have about a third of the portfolio in alternatives. However, most of these are equity absolute return funds which are relatively liquid. Likewise, the Newton Real Return Fund, they also have alternatives, but again, it's mainly liquid gold and silver ETFs and the exposure is much smaller than for Schroders.

 

On the other hand, the Premier Multi-Asset Monthly Income and Distribution funds, they do have some exposure to less liquid alternatives, for example, commercial property funds, specialty lending, solar energy and infrastructure. However, in aggregate, the exposure is only around 10%. So, we are fairly comfortable with that.

 

If an investor wants to get a quick sense of the liquidity risk in a multi-manager fund, they can look at the dealing periods of the fund holdings relative to that of the umbrella funds. However, to get a more accurate sense of the liquidity mismatch, you need to look at what's in the underlying fund holdings themselves. For example, if you find a commercial property fund that is daily dealing, you know that one day that's going to be an issue.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Newton Real Return U Acc1.07 GBP-0.19-
Premier Multi-Asset Monthly Inc C Acc180.22 GBP-0.05
Schroder MM Diversity Z Acc102.20 GBP0.10
About Author

Randal Goldsmith  is a Manager Research Analyst with Morningstar.