GETTING IT RIGHT
John Harrison, director, multi-asset, Henderson Global Investors says a key question facing both managers and investors in multi-asset funds is the extent to which the fund should reflect asset allocation views by taking short positions as well as long.
The ability to take short positions might help managers make money in falling markets or to express relative views – positive on a cheap market and negative on an expensive one. But short positions are more difficult to get right, he says.
“Most risk assets are expected to generate better returns than cash over time, so taking a negative position on any market is in effect swimming against the long-term tide. This can be profitable, but it does rely more heavily on market timing.
“Ultimately this comes down to what constitutes an acceptable risk profile for the investor.”
BEING BOLD
One factor that concerns many investors is the further one moves from a plain vanilla multi-asset approach, the more you have to invest in the skill of the manager.
Flexibility in the hands of skilled managers can lead to better outcomes, argues Yoram Lustig, head of UK multi-asset investments at Axa Investment Managers. Lustig also acknowledges flexibility in the hands of an unskilled manager can lead to a potential disaster. Investors should remember that uncovered short positions have unlimited downside.
“Some long/short strategies come with the objective of market neutrality – the beta, or correlation with equity or bond market movements, is removed.
“The result is an absolute return, the holy grail of investing – a positive return when markets go up and when markets go down. But this is easier said than done.”
In addition to reliance on manager skill, cost must be carefully considered, says Rod Goodyer, partner at Barnett Waddingham, “Accessing these strategies at reasonable cost is another issue that schemes should be aware of – some of these strategies are more commonly seen in the hedge fund space, but pension schemes will typically be looking to access them at more reasonable cost than the typical hedge fund fee.”
Despite this, Goodyer sees the evolution of DGFs and the competition for assets as keeping costs down for pension schemes.
COST AND VALUE
Some experts argue that fees are not really that low at all, that the managers protest too much.
One told portfolio institutional that fees are good for managers, with many funds charging three times what they would have for a balanced fund back in the day, yet differing very little from them.
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