The popularity of asset allocation funds, such as those in the Cautious, Balanced and Active Managed sectors, rose significantly last year during turbulent times for the markets, S&P says.
The ratings agency says the number of asset allocation funds it was asked to review was 119 in 2007, up from 79 the year before, which shows the demand from clients for the sector.
“We believe there will be a continued good run on demand for asset allocation funds which offer exposure to the potential upside as markets recover while protecting capital through diversification,” Glenn Meyer, S&P funds services lead analyst says.
S&P said there were a number of new funds launched to take advantage of the broader remit now allowed by the funds under UCITS III. It believes there will be incremental shifts by managers to use the new powers, including the use of derivatives, over the next few years.
Moves by funds into alternative asset classes last year were generally positive with agricultural commodities and energy exposure proving particularly beneficial.
S&P also noted managers of asset allocation funds took a more cautious approach in the second half of 2007 as the market became more volatile.
Meyer says: “Last year was a game of two halves. At the beginning of 2007 confidence was still in place in world equity markets. Commodities and energy were in demand and growth expectations were pretty good.
“In the second half this changed. The fear of inflation grew and the belief there could be a slowdown in economic growth. As the year went on there was increased caution among managers and there was a move to cash.”
Overall, S&P rated six asset allocation funds AAA, 43 AA, 64 A and six non-rated for last year. The Investec Managed Distribution fund, run by Alastair Mundy, was one of the funds which lost its rating as a result of poor performance. Three Fidelity Multimanager funds- Distribution, Growth and Income- also dropped their ratings following a number of team changes.IFAonline
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