A strategy for all sizes?
Baring Asset Management head of institutional sales Andrew Benton says: “Even for larger clients we are gaining traction and winning mandates where they see [DGFs] as a component in their wider strategy. They can benefit from knowledge sharing by taking a look at the views in our fund.” Benton says Barings has secured mandates worth “north of £50m, £60m and £70m” with local authority funds where a DGF typically replaces a portion of a scheme’s equity allocation.
DGFs also appeal to larger investors where the multi-asset strategy comprises more complex investments, such as alternatives. Schroders multi-asset fund manager Michael Spinks says his alternatives-only diversified growth fund is aimed predominantly at bigger investors.
“[The alternatives only DGF] is attractive to larger pension schemes that want to reduce equities and are interested in diversification through alternatives but don’t want to pick a hedge fund manager, an infrastructure manager and so on. Typically we will run 5-10% of overall portfolios,” Spinks says.
At the opposite end of the size spectrum, DGFs are also finding favour with the individual investor. Since multi-asset strategies are all about offering diversification without the governance headache, they are proving popular as a default option for defined contribution (DC) plans.
Hooman Kaveh, chief investment officer at Mercer’s investment business in Europe, says: “There is unequivocal appetite for multi-asset strategies in the DC market. Certainly DC trustees are seeing the so called DGF as a good, single fund solution as the default choice for a broad number of their DC members.”
By way of example, the Barings multi-asset fund for the DC market has amassed just under £120m in assets since launch three years ago. “DC member appetite for market volatility is similar to the average DB portfolio. The blue chip DC funds we are working with want multi-asset solutions as part of a default fund which offers growth but with volatility reduced,” says Benton.
Of course managers will only be able to keep hold of all these assets if they deliver on their promises but given the market is still relatively immature mangers have little in the way of long-term performance data.
However, investors can judge most funds over three years and Kaveh says there are two factors to take into consideration when assessing a multi-asset strategy’s performance: hitting growth targets and limiting volatility. “Most DGFs have a dual mandate; over the longer term it is to get equity-like returns while the short-term goal is to moderate market volatility. Most DGFs have done both of those things over last three years but there aren’t many with five-year track records,” Kaveh says.
He also notes that since many DGFs were launched just before the markets enjoyed something of an improvement in 2009 and 2010, before falling back in 2011, they have benefitted from starting off in marginally easier economic times.
Kaveh says: “[DGF managers] had a difficult 2011 but achieved a good absolute return for investors and they have done it with a lot less volatility than the equity markets. They have done what they said but we need another couple of years before we really have a definite track record.”
Comments