Multi Asset Fund Management – Managing Through the Crisis

Published by Sophie Fillmore on 2020 04 14

Multi Asset Fund Management – Managing Through the Crisis

Multi Asset Fund Management – Managing Through the Crisis

by KDW Director Marcus Maisey

The Coronavirus Crisis has thrown up extreme volatility in world markets.  The FTSE 100 was down 30% at one point, although it has recovered slightly since then.  These are unprecedented times and few of us alive today will remember such extreme volatility.  Naturally, such market movements are extremely unnerving and a cause of anxiety to both professional investors and clients alike.

We are all trying to work out how long the lockdowns will last, and whether a second wave of the virus will re-emerge once the lockdown is loosened. These questions are asked amid a new stoic mood in the country that we can all come through these extraordinary times with the help of our wonderfully brave NHS and key workers.  However, the questions are real, and markets are concerned that companies will simply not survive a prolonged shutdown and that dividends of the largest companies will have to be cut to survive.  Even when we come out on the “other side”, what will the world look like?  Will we all be working from home, making city centre office space redundant and commercial property valuations decline?  Will cash finally be a thing of the past and will the public dare to venture out for fear of picking up a residual dose of Coronavirus?

At KDW we have a robust investment process in order to actively manage and review the funds that we recommend.  We run multi asset, risk rated portfolios - the emphasis is on managing the risk. The risk of the multi asset funds are set out into five risk profiles: Defensive, Cautious, Balanced, Growth and Aggressive.  Risk is discussed with the investor and once a “risk budget” (how much risk the investor is willing to take) is determined, the appropriate funds are selected.  This is not to say that a split profile cannot be adopted (eg 50% Cautious 50% Balanced) but this decision is made with the investor.  The KDW investment committee meets at the end of each quarter to review how the funds have performed against the risk budget of the fund and against peer group.  This means that if the investor has selected a cautious profile, they will always have a cautious profile and there will be no drift in the risk that the portfolio holds.

This does not mean that the funds are not actively managed on a daily basis.  The fund management is delegated to the investment group.  As KDW is whole of market, we select what we perceive to be some of the best UK fund managers and use funds from the likes of Close Brothers, L&G, Architas, Cornelian, HSBC and Fidelity to name but a few.    The funds have different styles, from actively managed multi asset passives to actively managed stock pickers.  These fund managers will be making daily and weekly movements based on the fund manager’s analysis of the markets and opportunities available. Market downturns always throw up opportunities and certain stock will be performing better than others.  It is also the case that some stock is so oversold in the short term that it becomes too cheap to ignore – provided of course that the company manages to survive the downturn.  It is the fund manager’s job to attempt to pick the right stock at the right time.   The other major advantage of using multi asset funds is that the fund manager can invest in whichever stock market or asset class is deemed appropriate.  One reason why the risk rated funds have not fallen as far as the FTSE 100 index, is that the fund does not have to invest solely in the FTSE 100 index, indeed as the market falls the fund managers will have taken risk off the portfolio by switching into assets such as fixed interest or alternatives such as gold.  Once the market stabilises, the funds will be switched back into stock to catch the upside which must surely come at some point.

I have to conclude by saying that these have been extraordinary times, in the true sense of the meaning.  To say the last 4-6 weeks have been a time for fortitude and nerves of steel understates what we have all actually been living through.  Although the next 2 weeks will take further effort and resilience form a humanitarian point of view, there are signs that with markets stabilising there is a glimmer of light at the end of a very long and dark tunnel. If nothing else, you can rest assured that we are working harder than ever with the fund managers to ensure that the financial impact on the portfolios is minimised and that opportunities are taken whenever they present themselves.

If you would like to discuss your portfolio with your adviser or any other matter, we are all available on the office number 01727 852299 or directly on your adviser’s mobile. 

Finally stay safe, stay indoor and clap the NHS on Thursday at 8pm.