Delegation of asset allocation is key attraction of multi asset strategies

Institutional investors wishing to delegate responsibility for asset allocation is the strongest factor supporting the popularity of multi asset funds, according to new research from NN Investment Partners.

Seven in 10 (70%) institutional investors expect their peers to increase their exposure to multi asset funds over the next three years, including 16% who expect a dramatic increase.

More than half (55%) of institutional investors say the main reason for multi asset funds’ success in attracting investors is that they provide a solution for delegating strategic and tactical investment decisions.

Nearly two in five (38%) say the reason for their popularity is that they provide better risk adjusted exposure in a low economic growth environment and just under a third (30%) say it is because multi asset funds are an ideal strategy for the core of a portfolio. Only one in five (21%) say their capacity to help protect capital against market corrections is a reason for their popularity.

Valentijn van Nieuwenhuijzen, Head of Strategy, multi asset at NN Investment Partners, says: “Thanks to globalisation, financial markets have become increasingly integrated and complex. They are impacted by emotion and short-term thinking triggered by vast quantities of information flowing at high speeds. That leads to additional risks for investors but also opportunities.

“Faced by the complexities of markets, it is unsurprising that investors would rather delegate decisions to multi-asset teams equipped with the technology and experience needed to collate and digest a mass of data, assess market behaviour and respond rapidly to changing market environments with good judgement.”

When asked about demand for funds without a benchmark, half (50%) of institutional investors expect there will be greater demand while 15% expect this will not be the case. In particular, nearly half (45%) expect demand will also increase over the next three years for global multi asset strategies that use behavioural finance techniques.

Institutional investors regard a solid investment process as the most attractive attribute in the global multi-asset strategies in which they invest, with 61% regarding this as important, including 28% who believe it to be very important. Only 12% see it as unimportant. Over half (55%) say full flexibility to divest from any particular asset class is important, while 17% regard it as unimportant.