Best multi-asset funds

Are you a fan of convenience? Does investing make you keel over with boredom? Are you happy to let others sweat the small stuff while you get on with your life?

Then multi-asset funds are made for you. 

In this post, we’ll help you choose the best multi-asset fund for your situation. You’ll learn how they work, and we’ll offer some thoughts on what features matter. 

What are multi-asset funds?

A multi-asset fund (also known as a fund-of-funds) offers you an instant portfolio with a single investing purchase. Instead of painstakingly choosing your own equities, bonds, and other assets, you accept the fund manager’s selection. 

They will diversify you across the major asset classes, handle rebalancing, and swallow the complexity of portfolio management

A fund-of-funds is so-called because it wraps several specialised funds into one neat investing package. Each individual fund gives you exposure to a different sub-asset class.

For example, one fund will invest in US stocks, another in the UK, yet another in emerging markets. 

A multi-asset fund is essentially a meal deal. You may get a heartier helping of corporate bonds, say, than you’d otherwise have chosen, but that’s the trade-off.

You relinquish control on the grounds that the manager’s choice will provide a positive experience, minus the hassle of making all the decisions yourself.  

How do fund-of-funds work?

Fund-of-funds work by inviting you to make the most fundamental decision in investing: how much risk do you want to take?

Each multi-asset fund in a given range corresponds to a different risk level. You pick the fund that best fits your risk appetite. You then simply choose how much to invest and leave management to get on with it.  

The risk levels are typically labelled something like:

Cautious
Moderate
Balanced
Growth
Adventurous

The higher your risk level, the more equities and fewer bonds your chosen fund-of-funds contains. 

An adventurous fund may be 100% equities. A cautious fund can be as high as 80% bonds. 

Risky business

Risk levels are predicated on the risk-reward trade-off. 

This investing theory holds that higher rewards accrue over time to investors who bear more risk. 

The empirical upshot is that equities have typically been the best asset for growing wealth over the long term. That’s because investors have demanded a premium for putting up with their volatility and periodic crashes. 

The downside of taking risk is that your investments can be underwater for a while until the market recovers. 

That’s where bonds come in. High-quality government bonds can moderate stock market losses. But their crash protection doesn’t always work. And it usually curtails growth somewhat. 

A risk-averse investor – perhaps one who’s older and more interested in wealth preservation – should choose a multi-asset fund at the more cautious end of the spectrum. 

On the other hand an investor who’s gung-ho for growth is liable to have a large risk appetite. Perhaps because they’re confident they’ll ride out temporary setbacks without panicking about paper losses. 

Going back to the meal deal analogy, picking the riskiest multi-asset funds is like telling the chef you’re up for his extra hot spicy curry. Despite knowing it’s almost certain to give you a squeaky-bum-time at some point. 

If you’ve no idea how to even begin to choose your level, see our piece on risk tolerance

The middle fund-of-funds in each range usually approximates the 60/40 portfolio.

Best multi-asset funds

Here’s my pick of the best multi-asset funds available:

Multi asset funds range
Passive or Active?
OCF (%)
Watch out for
We like

Vanguard LifeStrategy
Passive
0.22
Home bias
No property
£ hedged global bonds
Index-linked bonds

Fidelity Multi Asset Allocator
Passive
0.2
Unhedged global bonds
No home bias
Small cap equities
Property

Abrdn ASI MyFolio Index
Passive
0.25
Home bias
Up to 20% active funds
Junk bonds
£ hedged global bonds
Property

HSBC Global Strategy Portfolio
Active
0.18
Unhedged global bonds
Derivatives
No home bias
Property

VT AJ Bell Funds
Active
0.31
Home bias
Unhedged global bonds
Junk bonds
No property
Index-linked bonds

Legal & General Multi-Index Funds
Active
0.31
Home bias
Thematic investments
Junk bonds
Small cap equities
Property
Index-linked bonds

BlackRock Consensus Funds
Active
0.22
Home bias
Unhedged global bonds
No property

BlackRock MyMap
Active
0.17
Home bias
Junk bonds
No property
ESG funds
Gold
Index-linked bonds

Source: Monevator research.

The table lists the multi-asset fund ranges I think merit further investigation.

The best fund-of-funds for you is a personal decision.
Your choice from any particular range should be guided by your risk tolerance. 

But how would I choose the best multi-asset fund for me? 

Fund-of-funds fundamentals

Above all, I believe most investors benefit from a passive investing strategy.

Hence the top spots go to three multi-asset fund ranges that adhere reasonably well to a passive approach.

This means their asset allocations aren’t likely to change much while you’re not looking. Moreover their portfolios consist mostly of index trackers

The other multi-asset funds in the table also hold lots of index trackers. But the difference is they employ active management

An active mandate gives the managers licence to change your asset allocation at will. Some managers operate within pretty wide risk bands, too. Some fund-of-funds can contain anywhere from 40% to 85% equities. 

While this flexibility sounds like a strength, in practice it’s often counterproductive. It’s just one of the reasons why active management is a weaker strategy for most people. 

Of the passive multi-asset funds, the Vanguard LifeStrategy range is the clear leader. Its balance of sensible asset allocation, consistency, low cost, and long-term returns make it a great choice. 

Every other contender on the list must really be viewed as an alternative to Vanguard LifeStrategy. 

You may want to consider putting some money into a Vanguard LifeStrategy alternative once your portfolio has grown large enough that it makes sense to diversify your fund manager risk.

You don’t want all your eggs in one basket, essentially. Our investor compensation scheme piece explains more. 

A couple more notes on the table:

OCFs listed are based on the best available fund share class that’s accessible via UK brokers on a non-exclusive basis.  

Add your fund’s transaction costs to gain a full picture of its total charges.

Multi-asset funds: what to watch out for

There are many ways to rank funds. Counterintuitively, recent results aren’t foremost among them.

Primarily because as all fund literature baldly states: “Past returns are no guarantee of future performance.”

For that reason, it’s better to pick an option that suits your circumstances and is geared towards investing best practice. 

All things being equal:

Passive is better than active
Low cost is better than high cost
Hedged global bonds are better than unhedged. This way they reduce volatility in your defensive asset allocation
Property, small cap equities, index-linked bonds, and gold are good diversifiers
Junk bonds and thematic investments are highly questionable diversifiers

Home bias1 has resulted in all the fund-of-funds holding more UK equities than investing theory suggests is optimal. 

This home bias may work for or against you, depending on the whims of the market gods. But as a deliberate choice it makes most sense for retirees with bills to pay in the UK. 

Note that fund-of-funds typically carry only small payloads of index-linked bonds. The funds are relying on equities as a long-run inflation hedge instead. 

Inflation is a big concern for retirees. If that’s you, then consider target-date funds with stronger anti-inflation defences. 

Beware that trivial asset allocations of 2-3% won’t make much difference to your return. However they may help the fund look more sophisticated!

Fund-of-funds and corporate bonds

A fund’s allocation to corporate bonds is worth investigating if you’re choosing an alternative to Vanguard LifeStrategy. 

Many multi-asset fund ranges include a large percentage of corporate bonds in their asset mix. 

And while bonds are generally assumed to reduce risk, whether they do so depends on the type of bond:

High-quality government bonds are reasonable hedges against a stock market crash. (High quality means a credit rating of AA- and above)
Corporate bonds – even when dubbed ‘investment grade’ – are less useful in a crisis
High-yield (or junk) corporate bonds typically heighten risk – much like equities

So pick a fund-of-funds with a strong government bond asset allocation if you want to keep a tight rein on risk. 

That may mean dropping down a risk level or two if you’re set on a fund that devotes the lion’s share of its bond allocation to corporate debt. 

UK multi-asset funds results check

Source: Trustnet Chart tool.

The results comparison above compares the UK fund-of-funds that are closest to a 60/40 equity/bond split in each range.

We already know that past performance does not predict the future. But it’s still worth checking the longer-term timeframes. Do any trends pop out?

For example, the ASI MyFolio fund significantly lags its passive multi-asset fund rivals (Fidelity and Vanguard) over three years.

Meanwhile, Vanguard LifeStrategy 60 maintains a healthy lead over Fidelity Multi Asset Allocator Growth over ten years.

And HSBC Global Strategy Balanced nudges ahead of LifeStrategy if judged over a decade. Though not by enough to make us think the lead couldn’t be quickly overturned.

When we last checked in the difference was a negligible 0.2% annualised in favour of Global Strategy.

ESG multi-asset funds

Most multi-asset managers now offer fund-of-funds with an ESG spin. It’s extremely difficult to verify ESG credentials. Hence we’ll just offer a few leads for further research:

BlackRock MyMap Select ESG
BlackRock ESG Multi-Asset Moderate Portfolio UCITS ETF (MODR)
Legal & General Future World Multi-Index
Abrdn ASI MyFolio Sustainable

Vanguard’s candidate is their SustainableLife Fund range. But its holdings are too concentrated for my liking. 

All of the above use active management, except for Abrdn’s ASI range. 

The Swiss army knife of investing

If managing your investments makes you want to stick pins in your eyes then rest easy. A multi-asset fund is a good way to get the job done. 

Choose a fund loaded with equities to take more risk in pursuit of higher rewards. Or opt for a fund-of-funds with more bonds for a smoother ride.

Ultimately, it’s your topline equities/bond split that will count most towards your long-term result. 

Choose the extra bells and whistles if you believe the evidence. But don’t be fooled into thinking that more always means better.

Take it steady,

The Accumulator

The tendency of investors to have an overweight holding of shares listed in their own country.

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Which is the best fund-of-funds for passive investors?
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