UBS has recently launched the Multi Asset Income Fund. Its aim is to provide an income through a diversified portfolio of investments. The fund can invest globally across a multiple of asset classes including bonds, shares, real estate and cash.
These investments are made in a number of ways. For example the shares exposure is gained through exchange traded funds (ETFs), the high yield bond exposure is made through other funds, and the property exposure is through Real Estate Investment Trusts. It can also invest directly in index linked gilts as a way to help protect against inflation.
There are no restrictions on where the fund can invest geographically. The fund can however make use of sophisticated investment tools including shorting, (see explanation below) on the shares component as a way to try and enhance income on the portfolio. This requires a specific skill and relies on the team to make the right decisions as if they make the wrong decisions it can magnify losses. All currency exposure is hedged back into sterling which means that although the fund invests globally, there is no currency risk.
At launch the fund is expected to hold around 25% in index linked bonds, 25% in the higher risk high yield bonds, 20% in equities, 15% in the higher quality investment grade bonds and 15% in property.
The estimated yield at launch is 5.3% (variable and not guaranteed) and the income will be paid quarterly.
The UBS Global Investment Solutions team, under the stewardship of Curt Custard, is responsible for this portfolio. The team has managed multi asset portfolios for over 27 years but this is their first multi asset income offering to the UK retail market.
Multi asset portfolios are still a relatively new breed of funds and we would like to see how UBS performs on a longer term view. With this in mind, the fund is not currently on the Wealth 150 list of our favourite funds in each sector.
Shorting – an explanation
Traditionally investors buy assets they believe will rise in value. Shorting is different.The principle is that the fund manager actually sells shares they don’t own. This in effect means he owes the buyer the shares. The buyer agrees they will not take delivery of the shares for, say, six months and the fund manager hopes that by then the share price will have fallen. After six months the fund manager purchases the shares in the market and passes them on to his buyer. The difference between the two prices is the profit or loss. For example:
1. Fund manager sells short 10,000 shares at £2 each = £20,0002. Purchase these shares six months later at 80p each = £8,0003. Profit = £12,000
In this example had the share price risen by the same amount, it would have cost the manager more to purchase the shares than they made from selling them and they would have made a £12,000 loss. There are many ways of effecting this investment strategy and managers may short by entering into contracts with a broker and not actually take delivery of the shares. Therefore this is not an exact description of how it happens, and ignores transaction and other costs, but it hopefully explains the principle.
Meera Patel, Senior Analyst
