Portfolio Construction is not an exact science and getting it right consistently is not straight forward.
Once you have set your strategic asset allocation and made your initial investments, constant movement in the markets impacts the value of the underlying investments and ongoing adjustments are required to ensure that your investment allocation is consistent with your long term investment objective.
Successful long term wealth creation is not a ‘set-and-forget' strategy. It requires detailed knowledge of the investment markets and an in-depth understanding of their dynamics, the patience necessary to spend the time required to fully understand the importance of domestic and global micro and macro-economic fundamentals and the impact they can have upon different asset classes, sectors, and investments in different countries during different market cycles. Most importantly, it requires the patience necessary to invest through periods of extreme market volatility and the experience to know when to hold and when to fold.
Diversified investment solutions
Finding the right investment is not easy, so for new investors, or investors who want to efficiently achieve broad diversification, multi-sector and fund of funds can offer a simple managed investment solution.
Simply pick a fund that has an investment objective and timeframe that is consistent with your own and let the fund manager do the rest.
Multi-sector funds
Multi-sector funds are generally categorised by their allocation to growth and defensive assets. The below table provides an overview of the breakdown between growth and defensive assets for five common model portfolios and the suggested investment timeframe.
| Category | Conservative | Moderate | Balanced | Growth | Aggressive |
|---|
| Growth | 30% | 50% | 70% | 85% | 100% |
| Defensive | 70% | 50% | 30% | 15% | 0% |
| Years | 3 | 4 | 5 | 6 | 7 |
Source: Morningstar
The below table provides an overview of the historical performance of the multi-sector funds available via RaboDirect over the past five years.
Source: Morningstar effective 31 January 2011.
Fund of Funds
Fund of Funds (multi-managers) offer investors who are having trouble selecting a suitable fund manager and also determining the right mix of assets with a total investment solution.
Multi-managers:
- Pick right mix of investments to optimise returns and minimise risk
- Select and blend leading fund managers and investment strategies
- Offer a simple dynamically managed multi-manager and multi-asset investment solution
Russell Investments offers a range of globally diversified best-of-breed, multi-manager, multi asset and multi-strategy investment funds which delivers investors access to global markets, multiple assets classes, specialist fund managers and then blend them together in a single fund.
Fund of Funds are a great way to enter the market for new investors, or investors who are risk averse and don't have the capacity to do all the homework necessary to choose and blend the right funds, strategies and assets.
They may also suit investors who might want a more “set and forget” style investment solution, or are looking to add a level of diversification to their existing portfolio.
The below table provides an overview of the historical performance of Russell's multi-manager funds over the past five years.
Source: Morningstar effective 31 January 2011.
Advantages of multi-sector and multi-manager funds
- Economies of scale and access to a range of global markets and investments not normally accessible to individual investors
- Investment management is outsourced to specialist managers
- Currency risk management is dynamically managed within the fund and aligned with asset allocation
- Exposure across multiple asset classes in a single investment
- A dynamically managed investment solution that will adjust to market cycles and volatility
- A range of model portfolio options for conservative to aggressive investors
- Multi-managers offer access to a range of specialist managers, different investment strategies and multiple asset classes.
So where do you start?
Find out what type of investor you are and discover your appetite for risk by using RaboDirect's risk profiler.
Then you can start to search, sort and compare funds on our fund selector to help find a fund which might suit your investment needs.
Happy investing!
