Stress testing the multi-asset promise

Added 18th February 2016

FSA looks at the worst performing multi-asset funds during the volatility spike of the last 12 months, when the vast majority of multi-asset went underwater.

Stress testing the multi-asset promise

Putting multi-asset funds under the spotlight during periods of strong market volatility can be a useful exercise to test the promise of the asset class. 

Mixed asset funds claim that due to diversification across a range of instruments, strategies, sectors and regions, they can cushion shocks that take down products investing in a single asset class. They promise to ease volatility while delivering at least modest performance.

That hasn’t been the case for the vast majority of multi-asset funds for sale in Hong Kong and/or Singapore over the last 12 months.

Global markets experienced strong volatility, led by investor sensitivity to falling oil prices, concerns over the management of China’s slowing economy and currency, and general worry over global economic growth.

During these wild market swings, 93% of multi-asset funds were in negative territory, according to FE data.

"During these wild market swings, 93% of multi-asset funds were in negative territory"

Here is the sector and the worst performers during the last year:


Source: FE. Multi-asset funds at least three years in the market and available for sale in Hong Kong and/or Singapore.


A closer look

A general characteristic of the five funds is that they pursue specific regional or asset class-focused strategies that have had poor performance over the las 12 months, said Luke Ng, vice president of research at FE Advisory Asia. 

“Unlike the mainstream multi-asset funds available for retail investors which mainly consist of global equities and bonds, these funds tend to be more volatile as they are structurally more concentrated into a particular region or asset class as defined by their investment objective.”

Investec Emerging Market Multi Asset and Templeton Emerging Markets Balanced were mainly dragged down by the exposure to emerging market equities, which significantly underperformed global equities and global bonds over the same period, Ng said. Emerging markets had $40.7bn in outflows in 2015.

The CitiFirst China Balanced Fund was maintaining 55%-60% Chinese equity exposure in the portfolio, and it had a good run in the first half of 2015 as Chinese equities surged, Ng said.

“However, the sharp Chinese equity correction from mid-year 2015 hit the fund’s performance.”

AB Real Asset Portfolio invests both in equities and futures in the commodities and real estate sectors, and it has a strong bias toward commodity exposure. “That dragged down the fund performance as oil and commodity prices slumped last year,” Ng said.

Turning to AXA Growth, Ng said it typically pursues an aggressive asset mix, with around 90% invested in equities and 10% in bonds.

“The higher equity portion relative to most multi-asset funds had a negative impact on the fund over the last 12 months. Furthermore, the fund bias toward Asia-Pacific ex-Japan equities is an additional detractor as the region underperformed global equities over the period,” Ng said.

Although the five worst performing funds shared negative territory with 93% of their peers, it is not all bad news for the asset class. Earlier, FSA looked at the best performing multi-asset funds.

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