Multi-asset and total return funds can invest in equities, bond and other markets in an attempt to spread risk and take advantage of a wider range of investment opportunities. They can focus on long-term positive returns or on producing a regular income.
These funds can invest flexibly across a wide range of equity and bond markets, providing investors with a high level of diversification in just one fund. Professional fund managers take a view on which investments and markets are most attractive depending on several factors, including the prevailing economic environment, relative valuations and market sentiment, and then focus their portfolios in the most attractive areas. Some funds may use derivatives or other methods to protect returns or enhance performance.
These funds aim to preserve capital and produce positive annual returns above a cash benchmark through flexible allocation across markets and sectors. They may have a limit on the amount they can invest in riskier assets, such as equities, to ensure that potential volatility is reduced.
This approach may appeal to investors who do not want to risk too much of their capital but still have the chance to earn an attractive annual return. However, these funds are also unlikely to participate fully in any major stock market rally.
Some multi-asset funds have an explicit income objective, focusing their attention only on the most attractive income-producing assets. This flexible approach can appeal to income seekers, helping provide a more consistent income stream.
Some funds may invest in other markets, such as commodities, real estate or private equity. They may use techniques adapted from hedge funds, including taking short exposure to markets and stocks and using derivatives, such as options and futures, to reduce risk or enhance potential returns. They provide experienced investors with alternative sources of returns, allowing them to add diversification away from equity and bond markets.