“Making a handful of good uncorrelated bets that are balanced and leveraged well is the surest way of having a lot of upside without being exposed to unacceptable downside. - Ray Dalio”

Recent market moves underscore that a difficult time is likely to lie ahead for investors. While President Donald Trump announced a pause in the roll-out of tariffs on 9 April 2025, it is not clear that the uncertainty caused by recent policy changes is behind us yet. The pause is temporary and does not address the uncertainty that has become the bugbear of investors.

Markets have been extremely volatile, and knee-jerk responses to news flow often do not take account of longer-term consequences. As such, reversals and recalibrations are likely to remain part of the investment landscape for quite some time. In the interim, investors have to continue finding ways to maintain and grow their wealth.

A volatile environment makes the case for multi-asset funds

While slower global growth may keep inflation contained in the shorter term, we still believe many drivers of longer-term inflation pressures remain in place. The existing pressures are now augmented by tariffs and the additional need to rapidly rejig supply chains, which is sure to have cost implications for businesses across the globe. Contrary to the expectations of some who view tariffs as a one-off shock, research by the Board of Governors of the Federal Reserve System found that trade disruptions led to “persistently higher inflation, importantly, because disruptions affecting intermediate inputs reduce firms' production efficiency”. Thus, we continue to believe that tariffs will add to inflation pressures over the next few years.

The danger that elevated levels of uncertainty bring, is the temptation for investors to withdraw from equity markets. In local markets, this tendency has been amplified, as we have enjoyed exceptional real returns from fixed income markets over the past few years. As a result, we have seen a large proportion of annual collective investment scheme flows being channelled into income and multi-asset income-type funds in recent years.

While we continue to see good real returns on offer from local fixed income assets, we anticipate that real returns from this space will moderate in line with changing market dynamics. In addition, there are dangers to investing too conservatively, especially in the long run. This problem is especially relevant to those facing the challenge of having a relatively long investment horizon, while also being fearful of drawdowns. The typical retired investor springs to mind. Despite the tendency of equities to be volatile in the short term, they remain an essential part of the long-term investor’s toolkit: equities are one of the few asset classes that reliably outpace inflation in the long run. And for this reason, it is also essential that such long-term investors ensure their portfolios include a sufficient allocation to equities.

Low-equity multi-asset funds can help clients strike a comfortable balance

For many investors, the cash versus equities debate can become an all-consuming one, but multi-asset funds have gained popularity precisely because they relieve investors of the burden of having to make asset allocation decisions. Research has also highlighted that being invested in such funds can help improve investor outcomes, as they remove much of the temptation to make poorly timed changes to portfolios and thus help to ensure investors remain invested over appropriate time frames. But while high-equity multi-asset (balanced) funds are perhaps the best known, and multi-asset income funds have surged in popularity over the last few years, the potential role of low-equity multi-asset funds is still being overlooked by many investors.

We believe that these funds may have a valuable role to play in client portfolios in the years ahead, given that high levels of volatility may be a feature of the market, for at least the next four years.

How low-equity multi-asset funds can add value to client portfolios

The PSG Stable Fund has a moderately higher real return target than a multi-asset income fund, which means that it is positioned to deliver meaningful outperformance of inflation over time. This can be important to investors who need to ensure their assets grow ahead of inflation, but who do not have the risk appetite to invest in a typical balanced fund, or cannot tolerate higher levels of volatility, perhaps because they need to fund income withdrawals from their portfolios. The fund is Regulation 28 compliant, and also suitable for inclusion in pre-retirement savings products.

To achieve this goal, PSG Stable Fund has access to a widely diversified investment toolkit, with the allocation to equities limited to 40% of the total portfolio. In addition to listed equities, the fund can hold a mix of debt securities, money market instruments, bonds, inflation-linked securities, listed property, preference shares and other high-yielding securities and derivatives. As such, the fund has full access to the shopping lists used by both our fixed income and equity teams.

An important aspect of how we manage this fund, is that we actively select securities that we feel offer clients the potential of asymmetric payoffs in line with our 3M investment process, and we carefully consider correlations as part of our portfolio construction process.

This approach has paid off handsomely for our investors, with the PSG Stable Fund having a strong track record − not only having delivered positive returns every calendar year since inception in September 2013, but also having beaten the ASISA Low Equity category average over 1, 3, 5 and 7 years, and since inception to 31 March 2025. In addition, the graph below highlights that the fund has outperformed its benchmark over most periods.

With markets set to remain highly volatile for the foreseeable future, investors need to carefully consider the importance of retaining a meaningful allocation to growth assets, even as they seek to limit volatility in their portfolios. We believe low-equity multi-asset funds are well positioned to help clients achieve what can be a very tricky balance.

A brief history of multi-asset investing

Multi-asset investing was born in the 1950s when Harry Markowitz introduced Modern Portfolio Theory (MPT), and led to the rise of the now well-known 60:40 portfolio, with an allocation of 60% to equities and 40% to bonds. By splitting assets between equities and bonds, portfolio managers can achieve an optimal trade-off between the level of risk taken, and the returns that investors realise.

However, a recent paper by the CFA Institute highlights that the optimal return point is not the same in all markets or consistent over time. This highlights the importance of a more dynamic approach to constructing these portfolios, rather than purely relying on a static asset allocation.