THINKING AHEAD, APRIL 2016 | ISSUE 82
Why invest in a multi asset
strategy and what is the key
to success?
DR ANDREAS NEUMANN
TIM WOTTAWAH
HEAD OF ACTIVE ASSET MANAGEMENT
PORTFOLIO MANAGER
[email protected]
[email protected]
Multi asset funds have seen tremendous inflows over the last couple of years with the choice of
funds increasing significantly. Here we look at some of the features which have contributed to
their growth.
Recent years have witnessed large inflows into multi asset
have realised. This is because in the last couple of years yields
funds and correspondingly a greater choice of such funds for
have been positive and investors have not been forced to look
investors. This growth has been driven by a number of factors.
for alternative return premiums. But this past performance may
not continue in the future. With the bund future hitting 166.58,
Firstly, the longer interest rates remain low, multi asset funds
the natural lower boundary of the 10 year yield should have been
will continue to see inflows, especially when investors seeking a
hit and investors need to ask themselves whether it really makes
minimum yield of more than 2% realise that they can currently
sense to lend money for a decade with a negative payout. The
either achieve a risk free, but negative return, or slightly increase
main benefit of considering multi asset classes is that correlation
their appetite for risk and thus be in a position to potentially
and volatility figures do move over time. In most cases within
earn a positive yield. Secondly, multi asset funds offer an
one asset class prices tend to move in the same direction, but
investment not only in equities and bonds, but also in alternative
the diversification effects that the Markowitz portfolio theory has
investments, something the plain vanilla investor may not as yet
taught us require low to preferable negative correlation among
ASSET AND PORTFOLIO MANAGEMENT
asset price movements. This can only be achieved by opening
fee below 1%. Additionally, there is no performance fee
up traditional asset classes to a whole array of alternative
attached to the product as it cannot be fairly attributed to the
investments in a multi asset fund.
shareholders of the fund due to permanent in- and outflows.
When looking for the best in class multi asset product in which
A good multi asset product should also have flexibility. In order
to place money, investors will realise there are many different
to either fully benefit from market opportunities or significantly
concepts all offering a good deal. Therefore, investors should
reduce risk, the equity quota of the Commerzbank multi asset
consider three aspects when selecting the product to invest in,
fund can vary between 10% and 65%. Although it is often
diversification, cost efficiency and flexibility.
taken for granted, we are indeed actively steering the risk quota
of the portfolio and not hovering around a neutral weighting
DIVERSIFICATION, COST EFFICIENCY
AND FLEXIBILITY
as do some comparable products. Chart 2 shows the asset
allocation weighting over time.
The Commerzbank Multi Asset Strategy Fund (ISIN:
LU1256228526) offers diversification in two ways; by investing
To put it in a nutshell, the successful story of multi asset funds
in 16 different asset classes and by combining three totally
is to be continued, but investors are strongly advised to think
different investment strategies in one product. This has
ahead and consider the characteristics of a successful multi
the advantage that the three single strategies show low to
asset fund we have outlined above.
negative correlation figures and this helps to smooth the
overall performance in the same way as it helps to open up the
investment horizon outlined above.
The first strategy is a so called momentum strategy which aims
Chart 1: Commerzbank Multi Asset Strategy Fund
Equity
Bonds
Alternative Investments
42%
18%
to invest in markets that have shown the best performance on
a relative basis in the past. The idea is to remain with the given
trend. The second strategy focuses on benefitting from seasonal
patterns. Time series analysis shows significant patterns repeat
40%
in history. These patterns range from large to small cap effects,
periods of superior expected equity performance, to oil price
effects coming from the so called driving season in the USA. The
first two sub strategies are purely quantitative. The third strategy
Source: Commerzbank as at 31 March 2016
is a discretionary strategy based on Commerzbank research and
fund concept benefits from these favourable execution prices.
■ Equity ■ Bonds ■ Alternative Investments ■ Money Market
These cost advantages are passed on to our clients by offering
the multi asset fund for institutional clients with a management
Source: Commerzbank
Dec 15
Dec 14
Dec 13
leaders in ETF market making, the Commerzbank multi asset
Dec 12
with narrow spreads. As Commerzbank is one of the European
Dec 11
drives performance. Another advantage is that ETFs are traded
Dec 10
also ensures that the correct, recommended asset allocation
Dec 09
efficient ETFs. This not only saves the investor money, but
Dec 08
Therefore, the Commerzbank multi asset fund mainly uses cost
Dec 07
negatively by the costs of the product used for implementation.
Percent
Dec 06
cannot be successful if the return achieved is compensated
100
90
80
70
60
50
40
30
20
10
0
Dec 05
But even the best quantitative models and portfolio managers
Chart 2: Asset allocation weighting over time
Dec 04
views. Chart 1 shows the current tactical asset allocation.