Since the outbreak of the Great Financial Crisis, flexible multi-asset funds have caught investors’ attention, causing assets to pour into the segment’s blockbusters. There is no need to go over the catalysts in detail; they have been well discussed enough: traditional benchmarks did not protect investors from deep losses. The resulting un-benchmarked flexibility meant that the emphasis shifted to drawdown management and the preservation of capital. Without necessarily promising ab- solute returns – since flexible investment processes have a long-only participative bias – managers focused on absolute risk.

So far, except for a few minor bumps in the road, flexible funds have lived up to investor expectations. The average Sharpe ratio of a European flexible al- location fund is estimated at 0.42 over the last five years. For sure, part of this performance is linked to factors that can be deemed exceptional. This may now place the industry at a crossroads. Indeed, these past years have been characterised by central bank ‘intervention’, much of it targeted directly at financial assets. There can be no question that quantitative easing (QE) has helped multi-asset funds post positive performances, with a significant share coming from the appreciation of bonds. Even a passive investment in European government bonds has returned an annualised 6,3%2. An equally critical contributor to the positive track record of flexible multi-assets funds was the diversification gain from equity and fixed-income markets: both gained over the past five years, though at different times. For in- stance, the correlation between the EuroSTOXX 50 index and the 10-year German Bund Future contract was -0.45 over the same period. Such a market environment has surely played a part in the impressive Sharpe ratios by many diversified products.

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