2022 has been a year to forget for stocks and bonds – almost no part of the market has returned gains. Lengthy periods of declines are known as bear markets, and the current one we’re in may persist well into 2023. It makes it tricky for DIY investors deciding where to invest. Traditionally, bonds should be a safe haven during bear markets. But this year may turn-up the worst on record for bond performance. As such, you might find multi-asset funds attractive. These have fund managers assessing and investing in assets classes representing the best opportunities given a prevailing market environment. We chat to Joseph Hill, senior investment analyst, at Hargreaves Lansdown, the UK’s no.1 investing platform.
What a year (to forget).
In more normal times, received wisdom on what percentage of bonds or shares should be in your portfolio would be as follows: dial-up shares for more risk and more growth; dial-up bonds for less risk and more protection. But these are not normal times. Following more than a decade of ultra-low inflation and interest rates, both jolted upwards in earnest this year. It has blindsided investors and crushed bond and stock markets.
Joseph Hill explains:
“With equity and bond markets suffering a torrid year, investors could be forgiven for wondering what role each should play in a portfolio.
“Traditionally, fixed-income securities (bonds) have presented less risk and volatility to investors, providing some ballast for difficult times with limited upside. But the combined impact of high inflation, rising interest rates, and expectations of a recession has been devastating for bonds. This year could end up being the worst year on record. The losses have been extreme, particularly for an asset class that’s supposed to offer some stability to investors’ portfolios.
“And equities which provide portfolios with growth potential have suffered too. Rising interest rates have made it more expensive to companies and consumers to borrow. So, worries about future company earnings downgrades and a squeezed consumer with less spending power have driven significant share price falls in some cases. Tech companies with high growth expectations for years into the future have felt the pain more than most.”
What is a multi-asset fund?
A multi-asset fund basically does what is says on the tin: it invests across multiple asset classes, usually through other funds i.e. it’s a fund of funds. The main assets it will invest in are bonds or shares, but others may be included too, for example property and alternatives like infrastructure. Usually, the fund will come with a label that indicates how risky its overall mix is aiming to be. For example ‘cautious’ in the title will likely be low risk and involve a fair percentage of bonds; ‘adventurous’ will indicate higher risk and likely contain a high percentage of shares.
Why is a multi-asset fund a good idea right now?
Hill explains: “In difficult and volatile times with so much going on and uncertainty lingering, it’s difficult for investors to keep track of emerging risks and opportunities. That’s why we think there’s value in leaving it to the experts. Investing in a mixed asset fund offers access to a carefully crafted, ready-made investment portfolio run by experts in their field. We think there are some talented managers who’ve demonstrated an ability to navigate this environment well.”
Three fund picks for an uncertain environment
1) Pyrford Global Total Return
Led by manager Tony Cousins, the team try to grow investors’ wealth modestly over the long run, without all the significant ups and downs of investing fully in the stock market. While it won’t shoot the lights out, we like their long-term, disciplined investment philosophy, which has been in place for many years. The team have a good record of sheltering capital in market falls but don’t expect it to keep up with rising markets.
2) Troy Trojan
Lyon likes to keep things simple, a quality we like. Capital preservation is key, he aims to shelter investors’ wealth just as much as growing it. Avoiding large losses has been an important characteristic of the fund and it has tended to come into its own and hold up well in weaker markets. Given its cautious approach. It’s not likely to keep up when share markets are performing strongly though.
3) Schroder Managed Balanced
The fund provides exposure to a broad range of assets including global shares and bonds. Collectively it’s invested in hundreds of different companies and bonds, offering a high level of diversification in one convenient investment. The fund could form the core of a portfolio aiming to deliver long-term growth or add some stability to a portfolio mostly invested in shares.”
These are not a recommendation as we do not know your personal financial circumstances.