The best one-stop multi-asset funds for your Isa

This year’s violent bond market sell-off has been a stark reminder of the importance of diversifying your portfolio and not putting all your eggs in one basket. 

But not everyone has the time, the money or the confidence to build a portfolio that gives them exposure to a wide range of assets. For many people, buying a single multi-asset fund instead is the simplest way to get a diversified range of investments.

Whereas many funds invest solely in shares, or focus on a specific market such as British companies, multi-asset funds own many different types of asset, such as property, commodities and bonds, in addition to shares.

This approach should reduce risk and potentially increase returns.

Myron Jobson of the stockbroker Interactive Investor says: “Multi-asset funds have grown in popularity among our customers in recent years, which have seen seismic shifts in the investment landscape. Investors have increasingly put their trust in them to ride out significant fluctuations in global markets.”

However, there can be a huge variation among multi-asset funds. Some are passive, others active, for example. There can also be a big difference in costs. While one of the best-performing multi-asset funds has no base management fee, another charges 1.4pc a year.

Here, Telegraph Money names the top-performing multi-asset funds of the past 10 years and help to choose the best one for you.

Best active multi-asset funds 

The Jupiter Merlin Balanced fund – a fund of funds – has returned around 90pc in 10 years, compared with an average of 60pc for its peer group. The fund gives investors exposure to stocks from around the world and to bonds. However, investors pay a relatively high fee of 1.4pc a year for its strong performance.

The Orbis Global Balanced fund, meanwhile, has returned 122pc over the past ten years. This performance is particularly striking given the fund’s unusual pricing structure. Orbis charges a fee based solely on performance. 

If it beats its benchmark, 40pc of the outperformance is used to cover the cost of running the fund, and investors are charged a maximum fee of 2.5pc a year.

However, if it fails to beat the benchmark, 40pc of its underperformance is refunded to investors.

The fund has around 5pc in gold, some short-term debt and a range of individual shares including Samsung and Shell.

Dan Brocklebank of Orbis says: “Generating our results required a very different portfolio from our peers. For years we held no long-term government bonds, viewing them as ‘return-free risk’. 

“The biggest driver of our returns was security selection, vindicating our belief that a ‘bottom-up’ approach can work in a multi-asset fund, where fund-of-funds models usually predominate. 

“By picking individual stocks and bonds, we outperformed despite a decade of headwinds for our value-oriented philosophy. We believe the next decade will see those winds reverse in our favour.” 

Best passive multi-asset funds

If you want to invest at low cost, a passive multi-asset fund may suit you.

Mark Preskett of Morningstar, the investment company, says: “A passive multi-asset fund typically comes at a lower cost than a more traditional multi-asset fund, especially in the active fund of funds sector, where charges can be eye-wateringly high.

“One should not underestimate the impact of fees on investor returns. Morningstar studies show the expense ratio as the most proven predictor of future fund returns, and success rates of the cheapest funds are far higher than of the most expensive.” 

Vanguard LifeStrategy 

Vanguard’s LifeStrategy range offers perhaps the best-known multi-asset funds. Although actively managed in one sense – an investment manager monitors the portfolios to check that the asset allocation does not shift over time – the funds consist of trackers that follow an index.

“Multi-asset funds from Vanguard’s ‘LifeStrategy’ range are particularly popular among our investors,” says Jobson. “They stand out for their clear and defined strategy, low cost and strong long-term record of outperformance since inception in 2011.”

The average annual charge across the range is just 0.22pc. The LifeStrategy 100pc Equity fund, which has all its money in the stock market, has, predictably, been the best performer over the past 10 years, delivering 144pc, whereas LifeStrategy 80pc Equity has returned 109pc and LifeStrategy 60pc Equity has returned 79pc.

Monika Calay of Morningstar says: “Vanguard’s LifeStrategy series shows how multi-asset funds that hold only passive investments can provide broad diversification across asset classes efficiently and at low cost. 

“However, their largely static allocations may lag when markets shift rapidly. For example, the LifeStrategy funds’ longer-duration bonds were more sensitive to rises in interest rates than rival funds, which hurt them when rates rose last year.

“Despite this setback, LifeStrategy funds remain a formidable challenge for active managers. Over the long term they are hard to beat.” 

Barclays Wealth Global

High street banks get a lot of flak for their poor fund performance but the Barclays Wealth Global funds have outperformed many multi-asset rivals.

In particular, the relatively high-risk Barclays Wealth Global 4 portfolio has returned 75pc over the past 10 years, compared with around 60pc for its peer group. It has at least 70pc of its assets in passively managed funds and costs 0.45pc a year.