Multi asset credit: A simple choice?

For pension schemes, multi-asset credit (MAC) funds are by far the strategy of choice in the current rate environment. The numbers support that statement.

Based on available data, colleagues at CAMRADATA tell the Lens that MAC enjoyed net inflows of £3.5billion during the second quarter of 2018. What’s more, it was the ninth consecutive quarter of net inflows for the strategy.

Probably one of the best innovations within asset management of recent years, MAC acts as a single portal into all areas of the fixed income spectrum, spanning traditional and non-traditional assets. In the most expansive funds, you will find stable government paper in there, riskier high yield, emerging markets, even asset-backed securities and bank loans.

MAC fund managers will tell us that, because they are usually unconstrained by benchmarks, they can use this array of fixed income assets to flexibly adjust to market conditions. They will chase yield when it’s comparatively safe to do so, and adjust risk to control drawdowns when it’s not.

Clients appear to be happy with these claims. At a recent roundtable we heard investors extol the ability of MAC to act as a hedge against rising rates and to maximise returns in even in the most hostile of environments, all based on the flexibility and diversification that portfolio managers boast about.

However, the scope of assets and the wide range of market views from portfolio managers at any one point in time does mean there is no such thing as a ‘typical’ multi asset credit fund. This could make deciding between one fund and another difficult.

In addition there are concerns around potential loss of capital (drawdown risk), see-sawing returns (volatility) and the ability to redeem funds when needed (liquidity risk).

But the strength of MAC as a fixed income diversifier – particularly during a market downturn – cannot be ignored, and though choosing between one fund or another might be tricky, the good news is 95% of the 71 products reviewed by CAMRADATA now have at least three years of data behind them.