09 Dec 2022
Shane O'Brien, Senior Investment Director & Head of Multi-asset & Macro Investment Specialists
In a world of high inflation and rising borrowing costs, every penny counts. We understand this, which is why value for money is the key pillar of the Aviva Investors Multi-asset Core Fund range.
Back in 1981, in the early days of the IT revolution, getting your hands on an IBM PC 5150 – widely heralded as the original home computer – would set you back a cool £2,400, around £7,000 in today’s money.1 That piece of kit came complete with 64K of memory and a floppy disk drive. It was a status symbol of its time, but beyond word processing, spreadsheets and games with 2D graphics, its usability was limited.
Fast forward to today, an equivalent home desktop can be picked up for less than £500, with exponentially more operating capacity and uses. (That is if you have one at all, given the ubiquity and utility of smartphones.)
This example highlights how perceptions of value are constantly changing. That is especially true in the investment industry, which has undergone seismic changes over the last ten years so that advisers and their clients get better value for money.
They want solutions that can help them achieve their desired investment objectives, but don’t come at a cost that will eat into their savings or pension pots. And, with UK inflation at its highest level for decades and the Bank of England raising interest rates six times since December 2021, getting maximum bang for your buck is more important than ever.
Regulation has played a key role in driving fund charges down in the UK. In 2011, the year before the changes that resulted from the Retail Distribution Review (RDR) came into effect, UK retail investors were paying on average 1.29 per cent in annual charges on active funds and 0.42 per cent for passive funds.2
If they wanted a mixed or multi-asset fund at the time, risk profiling was not part of the package. There was much less choice in terms of products, while the asset class and geographic exposures of these funds was limited. Consideration of environmental, social and governance (ESG) factors in the investment process was non-existent, while updates on how their funds were performing and how their managers were thinking about the key issues were limited to monthly factsheets, received in the mail.
But let’s get back to costs. For argument’s sake, let’s imagine an investor bought into a multi-asset fund with an annual charge of 1.29 per cent. The investor put in £10,000 to start with and made a regular contribution of £1,000 a month over a ten-year period for a total investment of £130,000. Assuming an annualised return of six per cent, their pot would have grown to £168,523.
That’s a decent outcome, you might argue, but it’s worth reflecting on the fact the investor would have coughed up £12,650 in charges to earn it.3 They might not have realised the extent to which charges were eating into their pot, however – transparency was sorely lacking ten years ago.
A lot has changed to improve value for money and transparency for retail investors. RDR was undoubtedly a catalyst, introducing a raft of rules to make the retail investment market work better for consumers, including raising the minimal level of adviser qualifications and improving transparency around charges and services.
Meanwhile, one of the key outcomes from the 2017 final report of the Financial Conduct Authority’s Asset Management Study was the requirement for authorised fund managers to carry out annual value assessments for the funds they operate, rules which came into effect in 2020: “Details of these assessments must be reported to investors together with a clear explanation of what action has been or will be taken if firms find that the charges paid by investors in the funds are not justified.”
Value-for-money means something very different to today’s retail investors. With more transparency around charges, performance, and the range and number of products available, they can move quickly should they perceive a fund to be underperforming, uncompetitively priced, or both.
Not before time, asset managers have had to up their game, including ourselves. Take our multi-asset offering. We pride ourselves on our track record in this area and the strength of our team – we’ve been managing multi-asset portfolios for over four decades, drawing on the expertise and perspectives of investment professionals across geographies and asset classes, and currently run around £98 billion in portfolios for Aviva and our external clients.
While we continue to offer a comprehensive suite of actively managed multi-asset funds – what we call MAF Plus – we recognise there is a vast array of investors out there who are more price sensitive. They still want risk profiling, diversified exposure in terms of geographies and asset classes, and the prospect of competitive returns, but they want to keep charges down as far as possible.
This led us to introduce a new range of multi-asset funds in November 2020 – MAF Core. Just like our MAF Plus suite, the five funds in the MAF Core range benefit from risk profiling, a truly global asset allocation approach (including the opportunity to get exposure to markets like global high yield and emerging-market debt), growth and defensive assets.
Further to this, MAF Core applies an ESG overlay when investing in developed-market equities and sovereign bonds by tilting the benchmark index towards better-scoring4 ESG companies and countries, while maintaining a similar risk-return profile to the index.
Another difference with MAF Core is our use of passive building blocks to keep charges down, with the ongoing charges figure capped at what we believe is a highly competitive 0.15 per cent a year. [For those wanting additional features and are willing to pay extra for them, our MAF Plus range offers exposure to uncorrelated assets and an active focus to enhance returns.]
Understanding that investors want clarity on the potential performance they can expect as well as on charges, we also introduced a performance objective for MAF Core of 0.3 per cent of additional returns over its benchmark (annually, measured over three-year rolling periods) as well as different volatility risk targets for the five funds in the range. Setting such targets makes us fully accountable for delivering the outcomes our investors expect.
We also know advisers and their clients want regular timely and engaging content that goes beyond what they read on a fact sheet. That’s why we produce a range of support materials – from our weekly Ask the Fund Manager video series to updates on the economic and investment environment, and from educational webinars to stories on how we are walking the walk on responsible investment.
Retail investors have more investment options and information about how these stack up on costs, performance and ESG than ever before. That puts them in control over how they allocate their hard-earned savings – value-for-money is non-negotiable, which is exactly what we are trying to give them with our MAF Core range.
But, just as our example illustrated how the PC market has changed over the years in terms of the quality of offering and value, we should expect a similar evolution for multi-asset investing. And, as the market and the needs of our customers evolve, managers like us must be prepared to evolve with them.
References
Sascha Segan, ‘1982 vs. 2022: Has technology really become more affordable?’, PC Mag, June 15, 2022
Key risks
For further information on the risks and risk profiles of our funds, please refer to the relevant KIID and Prospectus.
Investment risk
The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency exchange rates. Investors may not get back the original amount invested.
Emerging markets risk
Funds may invest in emerging markets; these markets may be volatile and carry higher risk than developed markets.
Derivatives risk
The funds may use derivatives; these can be complex and highly volatile. Derivatives may not perform as expected, which means the funds may suffer significant losses.
Important information
Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited ("Aviva Investors"). Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested.
The Aviva Investors Multi‐asset Funds comprise two ranges, each with five funds (together the “Funds”):Aviva Investors Multi-asset Plus Fund range comprises the Aviva Investors Multi‐asset Plus Fund I (“MAF Plus I”), the Aviva Investors Multi‐asset Fund Plus II (“MAF Plus II”), the Aviva Investors Multi‐asset Plus Fund III (“MAF Plus III”), the Aviva Investors Multi‐asset Plus Fund IV (“MAF Plus IV”) and the Aviva Investors Multi‐asset Plus Fund V (“MAF Plus V”) Aviva Investors Multi-asset Core Fund range comprises the Aviva Investors Multi‐asset Core Fund I (“MAF Core I”), the Aviva Investors Multi‐asset Fund Core II (“MAF Core II”), the Aviva Investors Multi‐asset Core Fund III (“MAF Core III”), the Aviva Investors Multi‐asset Core Fund IV (“MAF Core IV”) and the Aviva Investors Multi‐asset Core Fund V (“MAF Core V”).
The Funds are sub-funds of the Aviva Investors Portfolio Funds ICVC. For further information please read the latest Key Investor Information Document and Supplementary Information Document. The Prospectus and the annual and interim reports are also available on request. Copies in English can be obtained free of charge from Aviva Investors UK Fund Services Limited, St Helen’s, 1 Undershaft, London EC3P 3DQ. You can also download copies from our website. Issued by Aviva Investors UK Fund Services Limited. Registered in England No 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: St.Helen's, 1 Undershaft, London EC3P 3DQ. An Aviva company.