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Multi-Asset Funds: Simplifying Investment or a Hidden Maze?

  • adietyakchopra
  • Apr 3, 2024
  • 3 min read

Updated: Aug 20, 2024

Multi-asset mutual funds (MFs) have become a popular choice for investors seeking diversification and a hands-off approach. Promised as a "one-stop shop" for diversification, These funds promise exposure to multiple asset classes like equities, bonds, and even commodities, all under one roof. Sounds convenient, right?  However, a closer look reveals a hidden complexity – multi-asset funds exhibit a wider range of performance than traditional funds.


What are Multi-Asset Funds?

Imagine a basket filled with different fruits. A multi-asset fund is similar – it's a single investment that holds a variety of assets, like stocks, bonds, and sometimes even commodities (like gold). The fund manager mixes these ingredients (assets) in a specific recipe (allocation) based on the fund's objective.


Why Choose Multi-Asset Funds?

  • Diversification: This is the key benefit! By spreading your money across different asset classes, you aim to reduce risk. If one asset class performs poorly, the others might balance it out.

  • Convenience: Multi-asset funds are a one-stop shop for diversification. You don't need to pick and choose individual stocks or bonds.

  • Professional Management: The fund manager takes care of the investment decisions, research, and rebalancing (adjusting the mix of assets over time).


Correlation of Select Asset Classes with each other.

Source: Article dated Feb 2024 on "Chemistry of Investing" by WHITEOAK CAPITAL MUTUAL FUND


Why the Performance Swings?

Unlike traditional funds that focus on a single asset class, multi-asset funds can take vastly different approaches. This freedom leads to significant performance variations. Here's what contributes to the disparity:

  1. Divergent Asset Allocation:  Multi-asset funds  aren't all created equal. Some stick to traditional options like equities, debt, and gold, while others venture into foreign equities and commodities. This difference in asset mix significantly impacts returns.

  2. Varying Risk-Return Strategies:  Fund managers have different strategies for allocating assets and switching between them.  Some opt for static allocation, while others use dynamic rules. This can lead to some funds missing market upsides while others capitalize on them. Additionally, the equity exposure can be hedged or unhedged, impacting volatility and potential tax implications.

  3. Investment Philosophy Within Asset Classes:  Even within the same asset class, funds can have different philosophies.  For instance, some favor large caps, while others go for a mid and small-cap blend. This further diversifies performance across multi-asset funds.



The Investor's Dilemma

While multi-asset funds aim to simplify portfolio management and reduce the need to pick winning asset classes, the vast difference in strategies makes choosing the right fund crucial.  Selecting a subpar performer can negate any potential benefits.


So, what can you do?

  1. Patience is Key: Experts believe the performance gap will narrow as newer funds refine their strategies. Consider waiting for a track record to establish before investing.

  2. Understand the Fund's Goal: Choose a fund that prioritizes risk management over chasing outsized returns.

  3. Assess Your Risk Profile:  Align the fund's asset allocation and tax implications with your risk tolerance and financial goals. Equity bias might offer higher potential returns with lower taxes, but also increased volatility.

  4. Less is More:  While diversification across multiple asset classes is appealing, the more classes involved, the harder it is for the fund to deliver consistent performance.


AKC Capital: Your Partner in Informed Investing

Navigating the complex world of multi-asset funds can be daunting.  At AKC Capital, our experienced wealth advisors can help you understand the nuances of these funds and identify options that align with your investment objectives. We believe in empowering you to make informed decisions for a secure financial future.


Contact us today to schedule a consultation and discuss how multi-asset funds can potentially fit into your investment strategy.

Disclaimer: 

This blog post is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial planner before making any investment decisions.


To start your investment journey with AKC Capital, please visit the links below:


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