Of multi-asset class funds and investment questions

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Recent market conditions have been difficult as no real sense of direction could be ascertained as we oscillated between lifetime highs and profit taking on the Johannesburg Stock Exchange (JSE) and the Namibian Stock Exchange (NSX). Seldom have investors been so nervous as the common consensus has been the market has been overvalued yet investors and analysts continue to be proven wrong.

Multi-asset class funds have been touted as the answer for investors who are uncertain and have a certain amount of fear for the market. But what are multi-asset class funds? Multi-asset class funds as the name suggests are funds that invest into more than one asset class, meaning the fund invests into cash, bonds, equity and property and even offshore investments.

Worldwide trends in investment inflows suggest that multi-asset class funds are taking the rump of the new business as investors seem to have been paralysed with doubt and fear as to where the market is going. Why should we as investors take notice of the growing trend? Are we seeing a passing fad or is this a genuine option for the investor of today?

Multi-asset class funds have an important advantage for investors, namely diversification. As an investor is exposed to more than one asset class the risk of his or her investment is spread across different types of assets. This means that should the equity markets take a downturn the investor may make up or cover his or her loss in other asset classes. This is an excellent investment strategy in times of uncertainty when there are no clear winners or losers in the short to medium term. As diversification is an important risk management tool in any investor’s arsenal, multi-asset class funds provide not only exposure to growth assets but also spread your risk across multiple asset classes and geographic regions.

A further advantage multi-asset class funds provide to investors, is the element of compliance – especially with contractual investments such as retirement annuities or pension fund savings. As the majority of multi-asset class funds comply with regulation 28 of the Pension Fund Act investors don’t have to be concerned with complying with legislation as the fund is designed and set up for such investments from the beginning. With Namibia’s financial services industry continually evolving we see multi-asset class funds playing an ever-increasing role in the investment choice of the individual and institutional investor.

Multi-asset class funds should not just be seen as the balanced fund offering of yesteryear, as this product offering has grown and evolved to keep up with the times. Investors can now invest their cash portion of their portfolio in interest bearing multi-asset class funds that invest in bonds, cash and property thus replacing the more conservative money market type option with a well diversified low risk income-based investment.

With the financial markets in their current state of limbo and uncertainty remaining, multi-asset class funds are becoming increasingly important not only in managing risk through diversification but also ensuring the investor is properly compliant of local legislation where applicable.

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