Preserving capital with multi-asset unit trusts

A still-stuttering global economy, which persists despite global central bank economic stimulus measures, necessitates a focus on investor risk tolerance and timeframes. Asset class mixes, which promote exposure to both growth potential and diversification, are powerful investment vehicles aimed at prudently growing capital.

Global growth continues to be negative as developed economies battle elevated debt levels and emerging markets, like Brazil and China, find their economies faltering. Although central bankers have engineered a degree of growth through quantitative easing interventions, which have bolstered global liquidity, returns from local and global assets have benefitted disproportionately and are not a true reflection of a healthy global economy. The question remains, are the markets correct and, in fact, leading a recovery, or is there a sting in this tale?

A step in the right direction

“The answer may, however, lie in not dwelling too much on what lies ahead,” says John Duncan, Head of Product Management and Technical Marketing at Momentum Asset Management. “Forecasting is a tough game, even in the best of times. The emotion that often accompanies these attempts at prescience also further reduces the probability of investment success. Holding on to one’s portfolio, through bull and bear market cycles, is recommended, as is leaving the asset mix and security decision making to the asset manager,” continues Duncan.

Long-term financial savings can, in these uncertain financial times, be optimised by investing in multi-asset portfolios. Aligning an investor’s risk profile (generally associated with years to retirement) with his or her retirement objective could involve less risk tolerant savers investing in multi-asset funds with a return objective of Consumer Price Index (CPI) plus 2% or 3%. Those who are able to take on higher levels of risk should however rather focus on funds with CPI plus 4% or 5% as their return objective.

Growth and diversification benefits

Multi-asset funds provide growth potential though exposure to riskier assets, like equity and property, which is offset by exposure to diversification (volatility reduction) assets such as bonds and cash, which provide a more stable return. Offshore allocations provide further growth and diversification benefits. The phenomenal growth in funds allocated to multi-asset portfolios speaks to their success in meeting investor needs through both good and bad times.

“Assets under management have increased from R204 billion to more than R700 billion over the last three years,” adds Duncan.

Alternative options

Investors with a low tolerance for capital fluctuations (risk aversion) could also consider money market (fixed interest) or cash plus alternatives. These investors do, however, need to be aware that these products also present some risk in the current climate of negative real interest rates. The relative safety offered by fixed-income investing can compromise capital growth and the exclusion of property and equity in favour of security could come at a price.

“Alternatively, investors with the necessary emotional strength (and time) may consider risk equity investments which offer exposure as diverse as domestic or global developed equities, small and mid-cap shares, emerging market or African equities,” says Duncan. “The more adventurous are, however, advised to consider valuations and possibly stagger their investments (monthly instalment) in order to reduce the risk of buying high as part of a lump sum outlay,”