![]() ![]() If the strategy uses actively managed underlying funds as opposed to index funds, there’s an additional layer of security selection within each sleeve. Then, there are the kinds of stocks (size, style, geography) and bonds (sector, duration, credit quality, geography). First, there’s the allocation between stocks, bonds, and other asset classes. The many dimensions of a multi-asset strategy complicate analysis. Benchmarking is also critical to understanding risk and return drivers and measuring portfolio characteristics. The benchmark named in a prospectus or investment policy statement sets direction and serves as a gauge of value-added (or subtracted). A traditional index reflects the opportunity set for an investment strategy. It also owes to the fact that allocation funds are often used as core long-term holdings.īenchmarking a multi-asset strategy differs substantively from a managed strategy focused on a single-asset class. This is partly because allocation funds limit volatility, so investors are less tempted by dramatic performance swings to mistime purchases and sales. European allocation funds are used similarly well. fund types, with a positive gap of 40 basis points. According to Morningstar’s research report “ Mind the Gap 2020,” allocation funds produced the best money-weighted returns of all U.S. Morningstar data shows that multi-asset funds generally deliver a good investor experience. Category naming conventions vary by geography, some using adjectives such as “Cautious” and “Adventurous.” Multi-asset funds with relatively static asset mixes fall into Morningstar categories defined by their equity allocations-30-50%, for example. Within this framework, Morningstar researchers have created such groupings as multi-asset income, multi-asset inflation protection, and target risk. ![]() Some are referred to by mixing and matching descriptors like “objectives,” “goals, or “outcomes,” to “based,” “oriented,” or “focused.” Higher-education-focused investments also have an in-built lifecycle.īut many other multi-asset strategies that don’t follow glide paths have also proliferated. Target-date or target-maturity funds, which have become default options in many retirement plans, are a true “set it and forget it” solution. Multi-asset funds are often described as a “one-stop-shop.” Their diversified nature allows investors to outsource portfolio assembly, which became more appealing after the global financial crisis of 2008. Asset class building blocks can be passive or active, closed architecture, or unfettered. Some use a strategic asset allocation while others are tactical or dynamic. Implementation of multi-asset strategies can vary, from baskets of securities to a fund-of-funds approach. Their roots can be traced to traditional balanced funds, including the classic 60:40 split between stocks and bonds, as well as institutional investors’ “policy portfolios.” Their growth has been paralleled by the burgeoning model portfolio market in the United States. The landscape for multi-asset funds is diverse.
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