MULTI-ASSET STRATEGIES: FUND, PORTFOLIO OR BOTH?

MPS and multi-asset funds – different formats, not necessarily different strategies

Managed Portfolio Service and Multi-Asset Fund Comparison

There is a long-running debate in the industry that revolves around whether it is better to use a Managed Portfolio Service (MPS) or a traditional Multi-Asset Fund to deliver on the remit of a diversified portfolio. In our view, this is fundamentally a discussion around format and not about divergent strategies. It is rather like looking at an ETF and a traditional fund, two different forms of wrapper, but both with the capacity to have the same holdings and run according to the same underlying strategy.

Each format has distinct characteristics, and for an adviser, understanding which of these formats is most suited to the client and the wrapper is part of having a matrix of solutions as part of a Centralised Investment & Retirement Proposition (CIRP) that we help firms build.

MPS are easier for managers to launch, but operationally more complex to make changes across multiple platforms.  MPS offers greater flexibility and is ideal for customization. An adviser can work with a manager to build a range of portfolio customised to their firm's philosophy as well as client’s needs and requirements.

Multi-Asset Funds are harder for managers to launch, but operationally more straightforward to make changes within the fund hence provide greater agility.  Multi-Asset Fundscan also access a wider range of investments like ETFs and investment trusts, and use their scale to negotiate access to lower-cost institutional share classes.  The largest national adviser firms have launched multi-asset funds or building block funds as part of a “unitisation” strategy to offer model portfolios delivered in a fund format.  Scale is key to make sure that costs are not prohibitive.

The most effective approach, could be a blend of both. By using funds within an MPS—what's known as a "core-satellite" approach by way of "overlay funds", managers can make timely, agile changes within the fund structure, without being bogged down by the operational complexity of making changes across multiple platforms, all while maintaining a low cost more static core portfolio.

The art of blending is an art in itself, but it’s why we don’t see MPS vs Multi-Asset Funds as an either/or discussion.