UK: Classification Of Multi-Asset Funds

Last Updated: 24 October 2018
Article by Andrew Cheung and Shan Gao

Despite the rapid growth of the market and the increasing institutional adoption of multi-asset strategies, there is a blurring of terminology, which causes difficulties at times in terms of classification. There are many different types of strategies that might be labelled as multi-asset, encompassing a wide range of risk/return objectives, and a variety of approaches to achieve those objectives. Some are based on quantitative or systematic processes, while others are qualitative in nature.

The term DGF seems to cover a variety of approaches and there are no established boundaries of what the term "DGF" represents. We have seen strategies in the DGF universe ranging from absolute return strategies to vehicles using dynamic asset allocation of various shades. Choosing the right strategy for an investor's specific needs is important.

Several participants in our survey raised this lack of a common language and definition as a concern and a possible source of confusion amongst institutional investors. In the following table, we summarise the spectrum of multi-asset strategies and the naming conventions that are used elsewhere in this report.

  • Passive/Strategic Allocation (or Balanced) Funds: These funds allocate around broad asset allocation limits - often using passive investment to gain exposure to a diversified set of traditional return sources and alternative return sources, which have a long term strategic benchmark (passively managed with a static asset allocation or a set of investment constraints);
  • Dynamic Asset Allocation Funds: These funds are not required to hold specific asset classes due to the presence of a strategic benchmark and can adopt tactical/active asset allocation to invest in a broad array of growth assets;
  • Absolute Return Funds: These funds target the delivery of a positive return in all market conditions through long and short paired positions. These strategies prioritise the avoidance of negative returns and are less dependent on the direction of the market;
  • Risk-based Allocation Funds (incl. Risk Parity Funds): These funds provide a risk-diversified or risk-balanced portfolio of exposures to a broad range of asset classes. They allocate assets across investment strategies based on individual risk budgeting for each asset class. They typically target a specific risk level.

Apart from the Balanced Funds, all of the other strategies above claim the DGF label, which is one of the reasons for DGF's ubiquity. 

We observe that some of the dynamic asset allocation fund managers have flexibility to tilt the portfolio significantly from the strategic asset allocation, often with a minimum equity exposure of around 30% of the whole portfolio. This group has more variation in performance between its constituent managers, though this flexibility can allow managers to be better placed to deliver an absolute return.

Another large group of DGFs comes under what we define as 'Absolute Return Funds'. For these strategies, the focus on risk allocation (rather than asset allocation) and tighter risk management form an integral part of the investment process.

TABLE 1: multi-asset strategies classification


Asset-based allocation

Risk-based allocation

Passive / Strategic Allocation
(or Balanced) Funds

Dynamic Asset Allocation Funds

Absolute Return Funds

Risk-based Allocation Funds
(incl. Risk Parity Funds)

Asset Allocation Approach

Relative static capital asset allocation

Dynamic capital asset allocation

Risk-based allocation approach

Risk-based allocation approach

Long / Short

Long only

Mostly long-only



Typical range Equity Investments



N/A, low equity beta

N/A, low equity beta

Annualised Volatility1

High (between 4.2% and 8.3%, average 6.2%)

Medium (between 3.7% and 8.8%, average 5.8%)

Low (between 1.5% and 5.6%, average 4.0%)

Medium (between 3.1% and 8.1%, average 5.7%)

Correlation to Equity market2

High (between 0.49 and 0.99, average 0.89)

Medium (between 0.57 and 0.97, average 0.75)

Low (between 0.29 and 0.91, average 0.66)

Medium (between 0.40 and 0.96, average 0.70)


Medium expected drawdowns (between -11.9% and -3.1%, average -7.2%)

Medium expected drawdowns (between -12.8% and -4.0%, average -7.7%)

Small expected drawdowns (between -7.4% and -3.0%, average -5.0%)

Large expected drawdowns (between -14.7% and -2.8%, average -8.5%)

Average Information Ratio4






16% of the market

22% of the market

41% of the market

21% of the market

Source: MJ Hudson Allenbridge, Camradata and Bloomberg

1 Measured as 5-year annualised volatility as of Q2 2018.

2 Measured as 5-year correlation coefficient with MSCI ACWI Gross GBP Index as of Q2 2018.

3 Measured as 5-year maximum drawdown as of Q2 2018.

4 Average information ratio over the past five years relative to ICE LIBOR GBP 1 Month + 3% as of Q2 2018.

5 Estimated based on the submission of DGF manager responses to MJHudsonIQ with Camradata and Bloomberg used as a supplementary sources.

Unlike Balanced Funds, the rest of the strategies are not working to an external static benchmark. Instead, they share similar return targets over the longer term, typically CPI or cash plus objectives, which have traditionally been used as long-term global equity annual return targets.  Additionally, DGFs have generally reduced realised volatility compared to that of a pure equity portfolio, typically by between a third and a half, therefore accomplishing their risk reduction objectives. Hence, with DGFs, the focus is on total fund return relative to stated return and volatility objectives as opposed to performance relative to a universal benchmark. Additionally, some of the DGFs blend more than one strategy in one portfolio, for example, a mixture of strategic, dynamic, and low equity beta strategies makes it even more difficult to assess the performance of the overall DGF market.

Some of the above categories venture into the territory of global macro hedge funds and alternative risk premia funds, which similarly employ a range of long and short relative value positions while utilising options and other derivatives. We have seen increased competition between DGFs and other funds going forward. The battle is likely to be fought in the crucial areas of managers' skill, fees, capacity, transparency and client servicing, though the real beneficiaries should be pension schemes and other investors who will be able to access more efficient investment strategies at lower costs.

In the near future, we expect to see a number of multi-asset approaches existing simultaneously. We welcome any further strategy developments and believe that going forward diversification by approach will become as relevant as diversification by asset class.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions