One fund or several? Why build a multi-fund portfolio
Is one tracker fund enough, or should you hold several? A short video on why we often blend funds, and the extra management that needs.
What the video covers
- 0:00 One fund, or several?
- 0:11 Small tactical differences between funds
- 0:28 Different funds, different assets
- 0:42 The benefits, and the complexity
- 0:54 Managing drift and rebalancing
- 1:16 The takeaway
In short
If you invest in tracker funds, a tracker already spreads you across a market. The question is whether to hold one fund or several. Blending funds from different providers can add two extra layers of diversification: different fund decisions and different assets.
Some funds take short-term (tactical) views, so results differ a little from year to year. Different multi-asset funds also hold different assets, such as property, commodities or currencies. Holding a mix means you are not relying on any one fund’s decisions.
The trade-off is complexity. Over time the mix drifts away from your risk level as some funds grow faster than others, so it needs monitoring and rebalancing back within your risk level. This is a judgement call, and the mix does not need to be exactly equal.
A blend can reduce reliance on any one fund’s decisions, but it does not remove market risk or guarantee returns, and rebalancing has costs. The right approach depends on your goals and attitude to risk, and that is where advice comes in.
Related videos
- Why multi asset funds? Explained simply
- The Efficient Frontier explained simply: the theory behind blending
- Active, passive and a third type of fund you might not know
- All of our videos
- Our investment management service
Illustrative example only. It is not advice or a prediction of future returns. Figures and charts in the video are illustrative and are not real fund data. Tactical asset allocation funds can get decisions wrong as well as right. Our services relate to certain investments whose prices are dependent on fluctuations in the financial markets beyond our control. Investments and the income from them may go down as well as up and you may get back less than the amount invested. Past performance cannot be used as a reliable prediction of future performance. Diversification does not ensure a profit or protect against loss.
