MPS or Multi-Asset Funds?  

Downward pressure on costs and ongoing regulatory changes have provided tailwinds for managed portfolio services (MPS) and multi-asset funds (MAFs) over the past several years.   

Recent changes to capital gains tax legislation however, have made wrapped solutions, such as a multi-asset fund, a more attractive option for both ‘complicated’ and ‘uncomplicated’ clients of any size who do not need a bespoke portfolio. This surge in demand led us to launch the Multi-Asset Defensive, Cautious and Balanced Funds in November 2023.

These funds sit alongside the existing Growth and Income funds to complete the range available to financial advisers and their clients. The MAF range now has around £1bn in assets and has been carefully designed to complement the successful Managed Portfolio Service (MPS), which has been available to clients of financial advisers since 2011 with around £3bn under management.  

As the landscape continues to change, the distinction between MPS and MAFs has become somewhat blurred. In this article we look at the broad differences between the two and the differences between the two W1M offerings.  

Bending on platform

The blending of investment solutions has become a more prevalent strategy as advisers continue to adapt to meet the requirements of clients. For example, there may be an opportunity to reduce overall costs by blending an active manager like Waverton with a passive solution. However, due to technology limitations, it's not always possible to blend MPS solutions on all platforms, even as this trend gains momentum. Blending MAFs is often less complicated.   

Range of holdings

For many other investment houses, platform availability can impact their ability to hold certain assets within an MPS, notably investment trusts. This can result in the removal of a potential source of diversification and returns. Generally speaking, this is less of an issue for MAFs as the assets are held by the Fund.   

W1M's MPS portfolios (via the four building block funds) and MAFs are predominantly directly invested for our clients, meaning we do not rely on third-party fund managers or index tracking providers. This gives consistency across platforms (and in our direct custody) and full clarity on what we own (and importantly what we choose not to own), what the known risks are and a reasonable understanding of how our portfolios would perform given a specific set of circumstances.   

Investment transparency

With some investment houses, you may find increased transparency of holdings with an MPS solution as the individual assets are held directly by the client. It can therefore, sometimes, be more difficult to see the full list of holdings within a MAF as they are all wrapped up in the fund.  

Both Waverton’s MPS and MAFs are predominantly directly invested. We are able to share a full list of underlying holdings for both and this is produced on a quarterly basis, breaking down the holdings by asset class and geography. This can also be an important consideration for clients in relation to ESG factors.  

If the investment manager employs a fund-of-fund approach for either an MPS or MAF, obtaining a full-look through of underlying holdings can be very difficult, if not impossible.  

The difference between W1M's MAFs and MPS

While the MAFs share a common investment philosophy, investment process and are managed by the same team as the W1M MPS, they are not mere replicas. Rather, they provide an opportunity for investors to access W1M's investment expertise and investment process through a different vehicle and while there will be differences in exact holdings, the asset allocation will be consistent, ensuring that investors in both receive the full benefits of W1M's approach to portfolio construction.  

How will the holdings differ?

The MAFs are designed to be a distilled version of W1M's best ideas compared with the MPS. While the MPS will be more diversified with circa 300 holdings, the MAFs will have approximately 80 and be more akin to a wrapped W1M bespoke portfolio.  

Should performance expectations differ between MPS and MAFs?

Over the long-term, we expect asset allocation to be the primary determinant of performance. Therefore, we expect performance of risk-equivalent MPS models and MAFs to be similar over this timeframe.  

Short-term returns may vary. However, whether invested in MPS of MAFs, you will be accessing the same philosophy, process and people; we therefore do not expect such differences to persist over time. 

Rebalancing and communications

In the event of an asset allocation change, changes will be made to both our MPS and MAFs. Since this can have tax implications for MPS investors, where possible, we provide advance notification and rationale to financial advisers in a client-friendly format. This is not provided for investors in the MAFs.  

For the MAFs, factsheets are available on a monthly basis. The full look-through report of holdings is available on a quarterly basis. For the MPS, factsheets are produced quarterly and include the full-look through of holdings.  

Costs

Total costs should be similar; however, multi-asset fund factsheets will not show transaction costs 

Conclusion

We hope the launch of this new MAF range represents a compelling addition to our MPS and bespoke offerings, and presents a sophisticated investment vehicle through which financial planners can access W1M's expertise for the benefit of clients of all sizes.  

We work with over 800 adviser firms across the UK and regardless of the whether the client or adviser requires or prefers multi-asset funds, a managed portfolio service or our bespoke Private Client service, the underlying investment engine, process and philosophy is consistent.