The growth of multi-asset funds reflects a mounting concern by German investors that bond-only investments will not deliver them sufficient returns in the long run. Though bonds still enjoy strong monthly net inflows, asset growth of multi-asset funds has been much higher over the past three years. The latter now harbour €207bn, slightly more than the €196bn invested in bond funds. The higher risk appetite of German investors is also reflected in the comparatively high asset growth of funds with a high allocation to equity. Equity-focused multi-asset funds doubled their share of the multi-asset pie to 30% in the first six months of the year.
A sensible or a misleading choice?
Some see the rise of mixed funds, which is not exclusively a German phenomenon, as dangerous because many investors mistakenly consider multi-asset funds as low-risk investments. “Some 60% of long-only multi-asset funds are highly correlated to equity markets, so that gives you an indication where bulk of their risk is invested in,” said Claudia Roering of absolute return boutique Lupus Alpha at a panel debate organised by Expert Investor Europe in Frankfurt this spring.
This is a concern shared by Philipp Dirkx, a multi-asset portfolio manager at BHF Trust, also in Frankfurt. When attending a fund selector conference recently, he was shocked to learn that many of his colleagues gravely underestimated the correlation between European equities and balanced multi-asset funds with a 40-60% weighting to equities. “The average fund selector in the room thought it would be around 0.5 to 0.6. Many were surprised that the actual correlation is between 0.8 and 0.9”, he says.