Standard & Poor’s Fund Services today released a report outlining the key findings, trends, themes and relative performance of the multi-sector group of funds rated by S&P. The 2011 sector review comprised 73 headline funds offered by 24 managers, across six peer groups.
The report shows that the sector is expected to experience increased market demand amidst an environment of heightened asset-class volatility and uncertainty.
Multi-sector funds were previously considered the domain of retail investors seeking a diversified and relatively low cost investment solution, however S&P believes that they will gain in popularity amongst larger and more sophisticated investors. This is due to an increased emphasis on asset allocation and strategy selection as alternate and more enduring sources of alpha and risk-management, particularly in an investment landscape where active manager selection has become more difficult.
S&P Fund Services analyst Andrew Yap stated that “in a move away from past years, the strategic asset allocation only format is becoming less typical as managers move beyond the ‘set and forget’ approach to asset allocation, toward more flexible investment mandates. This permits exposure to alternative assets and strategies, while also incorporating tactical asset allocation to supplement existing alpha sources and control downside risk.”
“There has also been a move to introduce more targeted investment solutions, including ‘objective-based absolute return’ and ‘income-orientated’ funds. More dynamic and less constrained in approach, these offerings are in part a response to an increasingly sophisticated investor base, and investors with more specific investment needs,” Mr Yap said.
A key finding of the report was increased product enhancement, with a number of managers dedicating significant time and resources to bolster their existing multi-sector capabilities. Some sector participants have significantly progressed investment processes by using scenario analysis and Monte Carlo simulations to construct portfolios that produce more predicable, and resilient, investment outcomes despite varying market conditions.
Technical development was also identified as an area of focus, with the highest rated managers investing heavily to advance portfolio-monitoring and risk-management tools. These managers are moving toward an increasingly comprehensive and real-time assessment of risk and attribution.
The report shows that effective multi-sector portfolio managers display a number of investment traits that extend beyond that of single asset-class managers. Standout portfolio managers have a breadth of knowledge and experience spanning portfolio construction (including implementation processes), macro-economic analysis, regional and developed markets, active asset allocation, strategy, and manager selection.
