Architas urges greater clarity on alternatives ahead of RDR
Research carried out by Architas Multi Manager has shed greater light on funds’ “catch-all” alternatives allocation ahead of the demand for increased transparency under the RDR.
Architas chief investment officer Caspar Rock says the need for advisers to understand how exposed their clients are to alternative investments will only grow with increased use of outsourcing and the push for clarity in the industry.
A team led by Rock examined 52,469 individuals holdings of the 477 funds in the IMA Mixed Investment 0-35%, 20-60%, 40-85% and Flexible sectors to determine exactly what alternatives are held by mixed investment funds.
The research shows just over two-thirds of the assets held in the four sectors are collective investments or exchange traded funds (ETFs). Rock says this shows the increasing popularity of multi-manager products in the run up to the RDR.
Architas then examined the allocations of these collectives and ETFs and discovered that 19.25 per cent are in the alternatives category, making it the second largest class after UK equities. This works out as about 12 per cent of the total £87.4bn run in the four mixed investment sectors.
Commodities emerged as the most popular, accounting for about 22 per cent of the collectives’ alternatives holdings. In terms of sub-sectors, energy made up 7.98 per cent, metals 7.70 per cent, general 4.74 per cent and soft commodities 1.80 per cent.
Hedge funds were the second greatest alternatives allocation at 19.71 per cent, followed by absolute return products at 17.28 per cent, property at 14.36 per cent and private equity at 8.09 per cent. The specialist sector allocation stands at 6.07 per cent, structured products at 5.35 per cent, infrastructure at 4.83 per cent, convertibles at 1.66 per cent and derivatives at 0.43 per cent.
Rock says: “It’s really useful for IFAs and advisers to know what they are selling. RDR is looking for people to provide greater transparency and clarity on the products they are recommending.
“If they have a client who explicitly says ‘I don’t want any commodities’, do they realise there could be commodities in a fund they are recommending? Do they have that understanding?”
The research also shows that exposure to lower volatility and beta sub-sectors, such as property, infrastructure and absolute return, decreases as risk increases. Meanwhile, the weighting to higher volatility and beta sub-sectors, such as commodities, private equity and specialist, increases the further up the risk range is moved.
“This is important for advisers to consider when analysing funds, as behaviour of the alternative exposure across the four IMA sectors will be different – something which hitherto may not have been considered,” the study adds.
Architas’ findings are presenting in the asset manager’s ‘What’s the alternative; an analysis of the asset allocation of the mixed investment sectors’ white paper.
Will Dale Nicholls do a better job than Anthony Bolton running the Fidelity China Special Situations trust?