Multi-asset funds are well-diversified across multiple asset classes including equities, fixed income and a variety of alternatives. The products have been gaining appeal among investors in Asia. They promise to mitigate risk during volatile markets — the downside should not be as low as the market, nor the upside as high. Mutli-asset products also typically promise to deliver income in addition to returns.
Yet they are often complex with many moving parts and tend to have different specialised teams for each asset class the fund is invested in.
Luke Ng, FE Advisory’s senior vice president of research, provides a comparative analysis of two multi-asset vehicles, the JP Morgan Multi Income Fund and the Pinebridge Global Dynamic Asset Allocation Fund.
Luke Ng, FE Advisory Asia
He noted that multi-asset funds usually have very dynamic and unconstrained strategies, which makes comparison difficult when looking at their monthly portfolio weightings.
Due to their nature, they might also deviate from the underlying composition of the benchmark indices.
“The benchmark can be taken as a reference to compare the performance more easily,” Ng said. “The benchmark might also indicate a rough percentage of the allocations among certain asset classes. Hence, the volatillity of the fund might look similar to the benchmark’s volatility.”
Investment Strategy
The two funds have distinct investment strategies. The JPM fund has a yield focus, while Pinebridge’s product aims to “deliver equity-like return for investors,” Ng noted.
The JPM fund launched in 2011 and is domiciled in Hong Kong. It targets the best opportunities to generate active yield by taking a medium- to long-term view and “identifying investment themes that offer the best opportunities in the next 6-12 months”, Ng said.
The portfolio is well-diversified with 1,500 holdings. The aim for annual volatility is to maintain a range of 7-12%.
A neutral allocation is set to guide the top-down calls from the fund managers, as shown in the table below. “It is flexible enough as there is no strict allocation limit in place, even though the over/underweight positions usually stay within +/-20% of the neutral allocation,” he said.
“High yield usually accounts for the largest holdings in the portfolio and have stayed over 30% since the fund was launched.”
Ng also noted the team is not taking currency risk, as non-US dollar denominated assets would be hedged back into US dollars.
Top portfolio holdings
| JP Morgan Fund | % (neutral %) | Pinebridge Fund | % |
| High yield bonds | 36.8 (40) | Global equities | 33.8 |
| Global equities | 17.9 (15) | Emerging market equities | 26.9 |
| Others | 13.5 (n/a) | Emerging market debt | 14.5 |
| Preferreds/Perpetuals | 8.3 (n/a) | Others | 10.9 |
| Emerging market debt | 7.7 (20) | Invsetment grade | 5.1 |
| REITs | 6.1 (10) | US high yield | 5.0 |
| Emerging market equities | 6.0 (15) | Global government bond | 3.5 |
Source: FE. Data as of October 31
The Pinebridge fund, on the other hand, “attempts to take advantage of changing global economic and investment trends, and deliver equity-like returns for investors via investing into multiple asset classes, including some use of derivatives and less-liquid assets”, according to Ng.
A point to note is that although the fund was launched in 1991, Pinebridge (which is formerly known as AIG) restrcutured the product into a multi-asset fund in December 2013. Prior to that, it was managed with a balanced strategy, with the majority of assets allocated in equities and bonds only, Ng said.
Asset allocations are flexibily managed. The weightings of equities and fixed income do not exceed 75% (each) of the portfolio, he noted, while allocations in alternatives and cash shall not exceed 25% and 45%, respectively.
Still, the proportion of equities generally reaches roughly 60% for the Pinebridge fund, versus about 30% for the JPM product, Ng noted.
The Pinebridge fund is also highly diversified in terms of the number of underlying securities it holds. Much of the exposure is acquired via funds and ETFs.
“In contrast to the Pinebridge fund, which involves more hedging strategies with investment exposure through other funds and ETFs, the JPM fund in general has long-only investments handpicked by its own investment teams,” he added.
Performance
In terms of past performance, the JPM product beat the Pinebridge fund over a three-year period (see chart below). The period is about the same number of years that the Pinebridge multi-asset strategy has existed (as noted earlier, it was restructured in December 2013).
“Most of the underperformance of Pinebridge came from the first half of 2016. At that time, Pinebridge had high conviction on Europe ex-UK and Japan equities, but the markets suffered as investors fled to safety,” Ng explained.
In terms of volatility, during the same period the JPM fund was maintained at the low end of its target range at around 7%. Three-year annualised volatility is 6.49%.
The Pinebridge figure was higher, standing at about 10%. Three-year volatility, measured by standard deviation, is 8.8%.
By comparison, volatility for the overal category average of international mixed asset funds in Hong Kong stands at 7.5% over the same period, according to Ng.
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