Inside Money: Baskets, buckets and other egg-based investment strategies

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I routinely break the golden egg-distribution rule: they're all sitting in one chicken-shaped basket right now, on the top shelf in the kitchen.

But the cliché is normally rolled out as an investment metaphor rather than a practical egg risk-management strategy. The diversification message is clear enough: don't stick all your money in the same place.

In practice, diversification just means spreading investments across asset classes (such as shares, bonds, cash and property) according to taste.

However, should the same investment manager be holding all the baskets? Typically, investors hire a range of fund managers to handle different asset classes - or a multi-manager to make those decisions on their behalf.

Recently, though, the new concept of single manager 'multi-asset' investing has gained popularity. As this 2010 article from a US website shows, the "buzz phrase" isn't really that new - but it is fresh to NZ.

Under the 'multi-asset' approach, the manager has wide discretion to invest in many asset classes and to change the mix at will.

Peter Lynn, head of Tyndall NZ (soon to be renamed after its Japanese master as Nikko Asset Management), says multi-asset investing is like "the balanced fund on steroids".
Tyndall is pushing its multi-asset fund, which has attracted about $6 billion in Australia, out to NZ institutional investors.

Lynn says while the underlying investments might be relatively complex and fast-changing, the aim of multi-asset products is to provide an "outcome" - such as the inflation-rate plus 5 per cent - rather than beating a peer-based benchmark.

AMP launched a NZ version of its Australian-managed global multi-asset fund this year.

Like Lynn, Peter Verhaart, head of AMP Capital NZ Multi Asset Group, says the multi-asset method allows investors to focus on "goals" as opposed to relative fund performance.

Or investors can imagine multi-asset funds as managing different "buckets" of risk, according to Russell Investments NZ chief, Alister Van der Maas. (Warning: the term 'buckets' has been trademarked in relation to investment, he says.)

Van der Maas says while the multi-asset concept has been around for a long time (and his firm has a product on show), fund managers have access these days to very sophisticated technology that enables them to analyse a head-spinning number of market risk factors and quickly implement them in a portfolio.

In effect, multi-asset managers have to be skilled egg-jugglers: but f they drop them, it's still the investors' problem.

I may have an omelette for lunch.