An Overview of Multi-Asset Investment Strategies
Multi-asset investment strategies, an approach that invests in various asset classes, are growing in popularity. Assets may include cash, stocks, bonds, commodities, collectibles, and alternative assets, such as real estate, infrastructure, and private equity. More recently, multi-asset investing has broadened to include alternative asset classes like renewable energy projects. Although multi-asset investment strategies have evolved, their ultimate aim has not changed. It’s about giving investors income streams or attractive returns at lower risk levels.
Multi-asset investment solutions are a popular investment strategy amongst sophisticated institutional investors. The largest institutional investors in multi-asset products are pension funds, sovereign wealth funds, endowment funds, and insurance companies. Adoption among retail investors and private wealth managers, particularly in developed markets, is also significant. Often, individual investors use multi-assets in their savings and retirement contribution plans.
The multi-asset portfolio mix is designed to deliver a specific outcome in terms of return and risk. However, over time, multi-asset class investments can be modified to accommodate investor circumstances. A target-date fund is a classic example. These funds change the asset maturity according to the individual investor’s time horizon. For example, an investor with a significantly shorter retirement horizon would choose a faster maturing fund. Often, target-date funds have names linked to the target year, for example, the Fidelity Freedom 2055 Fund.
Multi-asset class investment strategies diversify assets in a portfolio. A multi-asset investor may, for example, hold stocks, bonds, cash, and real estate, whereas a single-class investor holds only stocks. Multi-asset fund investing recognizes that markets are globally connected and that happenings in one asset class can impact other asset classes.
Multi-asset class strategies reduce the volatility risk associated with a specific asset class. However, the diversification may reduce overall returns. Some assets may gain value, while others lose. Thus, if one investment class outperforms the others, it could lead to a situation in which it pays for some of the losses incurred by the other classes.
Getting the most out of multi-asset investing may require financial skills in selection and allocation. Deep knowledge of the markets helps create structured portfolios that contribute to the investor’s goals.
Investors should first understand their goals and identify the most appropriate multi-asset investment strategy. However, the suitability of any approach depends on the objectives. A risk is choosing an investment objective not aligned with the goal. For example, an aggressive multi-asset investment strategy may not suit a financial environment that demands a conservative approach. Similarly, a conservative approach may not allow investors to realize their long-term goals. To mitigate such risks, many asset owners hire professional fund managers or consulting firms to manage their investments.
The professionals develop and implement suitable asset allocation programs. Multi-asset fund managers help with big-picture decision making. For example, fund managers can help you when to shift assets between classes or invest more in a particular category. Also, they help balance asset classes for the desired outcomes.
Today, however, multiple fund management teams manage many multi-asset strategy products as it’s not easy to find all the required financial skills in one individual or place. This is particularly true in today’s world, where talent is highly specialized.