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December 11, 2017

Monday Morning Memo: How to Properly Classify Mixed-Asset Funds

by Detlef Glow.

Even though the topic of proper classification of mixed-asset funds doesn’t sound like a point of particular interest, it has raised issues for fund promoters, fund selectors, and investors alike. It gathered a lot of interest during the ”Petersberger Treffen,” a conference organized by the German consultant Drescher&Cie in Cologne on December 7, 2017.

Once upon a time – funds were simply constructed

In the good old days of the investment industry the life of fund selectors and investors was much easier, since equity funds invested straightforwardly in equities—as did their fixed income peers with bonds. Even mixed-asset funds were easy to classify, since they had fixed or target portions of their portfolios invested in equities and bonds in combination with cash as a risk-free position. Investors could simply buy a fund that had an equity portion that was suitable for their risk appetite.

Today, flexible funds are more common

Nowadays, this has changed a lot. Equity funds and bond funds can hold short positions and use derivatives to manage their market exposure as well as to optimize portfolios from a tax perspective. For mixed-asset funds the world has become even more complex, since the strategies mentioned above apply to both the bond and equity portions of a portfolio. In addition, a number of funds are following a so-called flexible approach, which means the portfolios do not have any targeted portion in the asset classes; i.e., the equity portion can vary between zero and 100% of the portfolio.

But that is not all. In the next step of product evolution mixed-asset funds have been renamed multi-asset funds, and the investment universe has been broadened to include commodities, precious metals, listed private equity, infrastructure, and properties to enable portfolio managers to profit from all opportunities in the markets. In addition, some asset managers have also introduced a multi-strategy approach to their portfolios: fund managers can not only choose from a wide range of assets, they can also implement hedge fund-like strategies to profit from inefficiencies between different securities within a single asset class.

Lipper Global Classifications have evolved to help

This variety of products, in combination with different investment strategies, has led to confusion among investors and data vendors alike. Lipper has had to find solutions to build peer groups with comparable products that help investors find funds suitable for their risk appetite and that deliver superior returns compared to other funds with the same investment objective. Lipper has steadily expanded its global classification system (Lipper Global Classifications) to meet the needs of investors. Traditional mixed-asset funds  and multi-asset funds, which mainly invest in equities and bonds, can be found in peer groups that reflect the different levels of equity-like exposure in the portfolio (conservative, balanced, aggressive, flexible) and the investment region (Global, Europe, Eurozone, etc.) as well as the investment currency (U.S. dollar, euro, Swiss franc, etc.).

The more complex multi-asset products with an absolute return approach can be found in the absolute return peer groups, based on the currency in which investors want to achieve the absolute return goal and the risk (low, medium, high) they want to realize over the course of a predefined 12-month period. Multi-asset funds using an alternative investment approach, without having a defined absolute return target, are grouped in peer groups with different investment approaches: alternatives multi-strategies, alternatives global macro, etc.

More accurate classifications of mixed asset funds reflect evolution 

This complexity means that investors no longer find all mixed-asset funds within a single set of peer groups (the mixed-asset classifications), since such an approach does not reflect the reality of today’s fund market. Instead, they get a much clearer view of the funds, since the variety of peer groups gives them a hint about the strategy and the expected risk/return profile of a fund, while the performance review tells them how the fund has done in comparison to peers using the same investment strategy and not just a similar approach of investing in mixed assets.


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

The views expressed are the views of the author, not necessarily those of Refinitiv.

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