Differing client requirements call for a complete fund range
THE merits of investing in single asset class or building-block funds, instead of a multi-asset class fund, has been one of the continuing debates in the investment community for many years.
Karl Leinberger, chief investment officer at Coronation, says when the asset manager first opened its doors for business back in 1993, balanced funds were the fund of choice for most clients. In the late 1990s, significant allocations were made away from these into building-block funds, only for the pendulum to swing back to multi-asset funds in recent years.
“These developments have largely mirrored the same trends in international markets,” Leinberger says.
“All clients are different, each with differing needs and risk budgets. Some have the appetite and the ability to make active asset allocation decisions (both are needed); others do not.
“For this reason, we believe we need to offer a complete fund range that includes both building-block and multi-asset funds as this empowers our clients to select the fund that best meets their needs at a specific point in time.”
He says arguments in favour of a building-block strategy include that it gives clients the ability to tailor asset allocation to their needs at a specific point in time. It also allows clients to allocate capital to fund managers who specialise in certain asset classes. Some of the best fund managers only offer products in one asset class.
“If you are to allocate capital to those managers, then investing in a multi-asset fund is simply not an option.”
He says few managers have skills in both asset allocation and security selection. He believes at the same time it is better to emphasise a generalist investment perspective and skills-set, rather than a specialist one. A good equity analyst should be able to give a well considered view on the merits of an investment in an inflationlinked bond against any stock that they may analyse.
“This generalist perspective builds better investors, drives better debate and results in better investment decisions and the positive spin-off from this is that it has resulted in Coronation delivering excellent long-term outcomes in both building-block and multi-asset funds,” Leinberger says.
“I do not think that this is a debate that can be resolved in a vacuum. Too much depends on the unique needs of clients and the quality of the multiasset and building-block funds available to clients in any given market.”
At the same time, he says clients with the opportunity to invest in a credible multi-asset fund should take it as it offers the opportunity to achieve higher returns.
As Leinberger points out, asset allocation is the most important decision that people make in investments.
“The ultimate value added by good asset allocation decisions dwarfs the alpha that can be delivered in the underlying building blocks. This is the big call and you need to get it right.
“Therefore, it makes sense to leave the asset allocation decision to someone who has the appropriate skills-set and then to hold them accountable for those decisions.
“This will be even more important in the years ahead, if our expectations of lower real returns are correct. In such an environment, alpha becomes a ‘must-have’ and not a ‘nice to have’,” Leinberger says.
He says there are concerns about the way in which asset allocation decisions are made in practice when clients follow the building-block strategy.