Is now the right or wrong time to invest in multi-asset funds?

Ciarán Mulligan: You will definitely disagree with this as a fund manager Georgina, but diversified growth funds have had a relatively easy ride recently. In terms of the post-2008 world, where volatility has remained high but without significant growth in many traditional growth assets, managers have said, ‘Listen, I’ve done pretty well here, I have a decent level of return for you. Whatever benchmark you want to throw at me I am pretty sure I am going to be there, or thereabouts’.

In an environment such as between 2002 and 2007, DGFs would have fared differently. They have not necessarily had to come under that scrutiny in terms of what you are giving up by not investing in an equity market. I do not think DGFs are the be all and end all; they should not automatically be the default solution, but I do think there is a place for them in part of the portfolio.They definitely will come under scrutiny in a sustained period of positive performance in equity markets.

Allan Lindsay: I was talking about the period of doubt – we are now seeing the point where some trustees are going through a period of doubt, as the performance of these funds has not been as good as that of equities. The performance is not that bad, it is just that it is not as good as equities.

Georgina Taylor: There are two things that have been said today regarding having some kind of holding in DGFs – if that’s what you want to call them – to think about. First, I think market cycles are shorter so you have an issue in terms of timing for investment returns. And second, the volatility of liabilities has arguably increased, which I do not think will come to an end given what is going on in terms of monetary policy and rates.

Jonathan Reynolds: With recent increases in gilt yields, the volatility shows signs of going the right way. The dynamics of any scheme are very, very different. Sometimes the pressure to look at investment performance may come from the financial director. They get their FRS 17 report and they look at what has been happening, and they compare it with something completely different like their own Isa. Or it may come from a member or a particular trustee who has taken an interest in the performance.

Very quickly people forget why it was they were invested in a DGF and that they were absolutely delighted when it was giving them 5 per cent a year for three years on the trot, when the equity funds were dancing all over the place or heading south. Now that we have had a really buoyant quarter, trustees start looking at performance with furrowed brows and asking, ‘Why are we doing in this?’ These investment managers never deliver and you say, ‘Whoa, let’s not forget what this fund does for the scheme’.

Mulligan: You do not want to get greedy; greed is not necessarily good.

Reynolds: The most important thing is I have never met a board of trustees that has any mechanism in place to make tactical asset allocation decisions.

Mulligan: I totally agree with that. TAA is not in the realm of the trustees, but I think you can take a view that over and above a strategic asset allocation that lasts, say, for three to five years, you can often identify opportune times in markets when asset valuations become distorted – at the end of 2008 before the equity rally in 2009. I think there are certain instances when you can put in place a mechanism for taking advantage of anomalies.

Reynolds: They do not have the mechanism for it. If you go along to the next trustee meeting and say, ‘Oh, equity returns have been excellent, shall we look at doing this?’, by the time you actually get around to making a decision the world has changed.

Mulligan: That is interesting because we have a number of schemes that do not get involved in TAA, but they are able to take advantage of medium-term opportunities. They have the infrastructure in place to say, ‘Okay, fine’. If we identify certain opportunities in the market, from a valuation perspective we believe an opportunity exists, they will then know what their decision-making structure is going to be and we can get things moving.

There are multiple examples over the past three to four years because we have had some sharp corrections and movements in markets, so therefore schemes that are set up to take advantage of these have benefited. You are not doing it on a weekly or monthly basis, but you can do them within the cycle of a trustee meeting. However, you have to have that framework set up and in place beforehand.

Reynolds: The only way you can get that is to go to a full discretionary mandate. You need somebody to do it for you. There is no way any trustee can.

Lindsay: It is perfectly possible for trustees to set trigger levels at which the trustees, or nominated representatives of the trustees, will have a conversation with the consultant as to whether they should change the asset allocation. That is not TAA. That is tactically implementing the long-term strategic view, which is different from TAA. It does not necessarily involve going down the platform route or fiduciary management.

Allan Lindsay is head of investment consulting, north at JLT Employee Benefits

Ciarán Mulligan is head of manager research and selection at Buck Consultants

Jonathan Reynolds is an independent trustee at Capital Cranfield Trustees

Georgina Taylor is product director, multi-asset at Invesco Perpetual