Multi-asset income funds invest primarily in a mix of bonds and equities, and they have different risk levels, depending on the allocation between equities and bonds, and generally lie somewhere between the risk of a bond fund and an equity fund.
Multi-asset funds aim to deliver stable income, even during times of volatility. However, in Q1, when global markets experienced strong volatility, multi-asset funds available for sale in Asia had capital outflows of $40bn, according to Strategic Insight data.
For investors, it is crucial to know the composition of the investment portfolios and allocation updates to ensure a clear understanding of the potential returns and risks attached to these funds.
Against this backdrop, Fund Selector Asia compares two multi-asset funds in the region -- the Allianz Asian Multi Income Plus Fund and the Schroder Asian Asset Income Fund.
Luke Ng, FE Advisory’s senior vice president of research, provides a comparative analysis.
The Allianz fund and the Schroder fund are domiciled in Luxembourg and Hong Kong, respectively. The Allianz fund tracks two benchmark indices, namely the MSCI Asia Pacific ex-Japan High Dividend Yield Index and the JPMorgan Asia Credit Index Non-Investment Grade (USD) Index.
The Schroder fund does not have a designated benchmark.
The Allianz fund tends to follow a static allocation approach, investing around two-thirds of its portfolio in Asian equities and one-third in Asian bonds, Ng said. In its fixed income segment, it has a core focus on high yield, with the majority of investment denominated in US dollars.
The Allianz fund aims for 75% of the return to be generated from dividends and coupons, and 25% coming from securities price appreciation and some covered call strategies. The fund is offering about 5.5% yield overall, he said.
On the other hand, the Schroder fund employs a flexible asset allocation framework that allows a range of 30-70% exposure to Asian equities and Asian bonds, Ng said.
“In addition, the fund is allowed to invest up to 20% in other asset classes, such as global equities and global fixed income, and up to 30% in cash. It is a dynamic approach, in that the multi-asset team actively adjusts the allocation and also takes part in market risk and currency management by using various hedging strategies,” he said.
For the Asian equities segment, the Schroder fund mainly focuses on Asia-Pacific ex-Japan with unconstrained allocation. For the Asian bonds segment, the team invests in investment-grade and high-yield bonds, he said.
“Currently, the fund targets an overall yield of 5%. The target is reviewed on a quarterly basis,” he said.
When comparing the two funds, Ng said the Allianz fund has a more concentrated portfolio than the Schroder product, especially on the fixed income side.
“The Allianz fund is holding 30-40 debt instruments in the portfolio focusing on lower quality bonds, whereas the Schroder fund usually holds over 100 debt instruments across high and low quality bonds.
"Currently, the Schroder fund prefers investment-grade bonds over high yield bonds,” he said.
|International Equities||66.2||Asia-Pacific Equities||41.9|
|Global Fixed Interest||26.4||Global Fixed Interest||23.9|
|Others||4.8||Hong Kong Equities||13.0|
|Alternative Investment Strategies||0.1||Money Market||5.8|
|Hong Kong Fixed Interest||5.3|
FE gives the Allianz fund a three-crown rating and the Schroder fund gets five crowns, indicating that the Schroder fund posted stronger risk-adjusted performance in terms of alpha, volatility and consistency over the last three years, Ng said.
The Schroder fund has outperformed the Allianz fund since mid-2011, when the Schroder fund was launched.
Ng believes the Schroder fund gains support from its allocation and securities selection strategies.
“The Schroder fund also benefits from its active hedging overlays. In 2015, the team foresaw rising market uncertainties and the potential influence from a stronger dollar, so that they took action to hedge some market beta as well as hedging toward the US dollar and the Hong Kong dollar, which added value for the year,” he said.
In addition, volatility of the Schroder fund has been lower than that of the Allianz fund, he said. Over a three-year period ending 20 May 2015, the Schroder fund's volatility was 6.01 and the Allianz product volatility was 9.46, FE data shows.
The Schroder fund has been outperforming the Allianz fund over the past three years, FE data shows.