What is a Multi Asset Fund?

Multi asset funds are made up of a combination of asset classes, including equities, bonds and cash, and are designed with different asset allocations to create a range of low-to-high risk offerings.

For example, a low-risk or conservative fund might invest heavily in bonds, while a more aggressive fund might focus on shares or property.

They’re looked after by fund managers who review and rebalance the asset mix regularly and employ a range of strategies that aim to manage risk and optimise growth.

What’s the difference between asset classes?

Equities (also known as shares) are issued by a public limited company and traded on the stock market. When you invest in an equity, you buy a share in a company and become a shareholder. Equities aim to create profit through capital growth (when the share price increases), or you can build income via dividends.

Bonds (also known as fixed income) are issued by companies and governments as a way of raising money. It’s an I.O.U effectively, that aims to provide a regular income stream, over a fixed period. It also comes with a promise to return investor capital on a set date in the future.

Cash is usually held in a bank account where interest can be gained. To optimise growth, cash funds use market power to get better interest rates than bank accounts typically offer. They can also invest in very short-term bonds lasting one year or less.

Why choose multi asset funds?

The key objectives of multi asset-funds are to increase diversification and reduce risk, creating balance and avoiding the volatility that can come from having all your eggs in one basket.

For example, a multi-asset investor might hold a mix of bonds, cash and property, while a single-class investor might only hold stocks.

As a result, the benefit or loss of any market movement for the single-class investor can be amplified, while the multi-asset investor might experience more moderate gains and managed losses, by spreading risk and aiming to reduce the impact of any major downward turn.

Of course, no investment comes with a guarantee, making it even more important to choose funds and strategies that take account of your appetite for risk and aim to keep you within your comfort zone.

Avoid the trap of trying to time the market

A single-asset class might outperform during a particular period, but no asset class will outperform every period.

The diversification of a multi-asset fund helps with timing too, removing the impossible task of trying to guess which way the market will go and when, helping investors ride out peaks and troughs with more shelter.