Multi-asset
Can one fund ever be enough?
7 min read 19 Apr 24
When it comes to investing, managing risk is all important. It can be wise to spread your money over a range of different assets, so that all your eggs aren’t in one basket. So surely it follows that investing in just one fund could leave you over-exposed to the performance of a handful of assets or companies? Depending on the fund, this might be true – but it’s not the case for every fund.
Taking a step back, let’s remember why diversification (spreading your money over a variety of different types of investments) can be a good idea in the first place. Above all, it helps to protect you from the ups and downs, or volatility, that every type of asset, like bonds (a type of loan usually issued by a government or company), equities - shares in a company - and cash for example, can experience.
The value of your investments can go down as well as up so you might not get back the amount you put in.
If you need help with any of the terms used in this article remember you can always take a look at our glossary.
You can never guarantee against investment losses, but if your portfolio is effectively diversified, its value, and the returns you’ll get, will usually be less volatile over the long term (10 years or more). This is because most asset classes have historically tended to perform differently in the same economic conditions. In a well-balanced portfolio, underperforming assets can hopefully be offset by others that have little or no correlation to them. Please remember however, we can’t predict the future. Past performance isn’t a guide to future performance.
So what about the multi-asset option?
Funds focused on only one asset class will package-up several investments, but the returns they can deliver for investors will always depend on how that type of asset, whether these are equities or bonds, performs over a given period.
Multi-asset funds however look to offer a more rounded investment option, by holding a mix of different types of assets, all in one fund. We consider multi-asset funds to be ‘stand-alone’ funds. This means you can choose to hold them individually, and not necessarily as part of a wider investment portfolio. By contrast, we consider non-multi-asset funds to be ‘building block’ funds, but we’ll explain more about that shortly.
Multi-asset funds can hold assets such as bonds, equities, property or cash, whose performance has historically had little connection to each other, in order to achieve diversification. They might also invest in assets in different countries and currencies to reduce the risk of being too exposed to the fortunes of individual economies when they take a turn for the worse.
Many multi-asset funds are actively managed by expert fund managers and their mix of holdings can be adjusted to respond to market conditions as they change, or even to pre-empt them. In funds where the balance of asset is not fixed, a multi-asset fund manager can act on opportunities where they see them, in certain holdings, countries and currencies to give your investment the best chance to perform well.
One of the main attractions of investing in a multi-asset fund is simplicity. With one investment your money is invested in a diversified – and professionally managed – portfolio.
Building block funds vs stand-alone funds
As we’ve already mentioned, multi-asset funds are what we class as 'stand-alone' funds because they spread your money across different asset types so you don't have all your eggs in one basket.
However, funds investing in equities, bonds and property asset classes alone are what we consider to be 'building block' funds, which are best held as part of a wider investment portfolio of different asset classes, and potentially spread across different regions and sectors too, to help reduce the risk to your money.
Choosing the right approach for you
While investing in a multi-asset fund might be convenient, it must be right for you and your individual needs. They’re not all the same and carry different risk and return profiles. Some will expose your money to more risks than others but also offer greater potential rewards, and vice versa. Some might focus on delivering a regular income for their investors while others might prioritise growing your money over the long term.
But depending on what you want from investing your money, and the amount of risk you want to take, there might be a multi-asset fund that could offer you a suitably diversified portfolio in one fell swoop.
The views expressed here should not be taken as a recommendation, advice or forecast. We’re unable to give financial advice. If you’re unsure about the suitability of your investment, speak to your financial adviser.
The views expressed here should not be taken as a recommendation, advice or forecast.