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Multi-asset – the art of piecing together a portfolio
03/04/2025
In a world shaped by geopolitical uncertainty and economic volatility, flexibility is key for investors. DWS product specialist Torsten Harig explains why total return strategies may be well suited to navigate the challenges of 2025 and beyond.
In summary
- Multi-asset funds, especially those with a total return approach, offer flexibility to respond to changing market conditions. This can make them the ideal choice in turbulent times.
- Multi-asset funds can offer investors stable returns at a moderate risk.
- Share classes with monthly distributions may be appealing to investors seeking consistent income, such as retirees.
Herr Harig, Multi-asset funds have recently been attracting more and more interest from investors. What is the idea behind them?
Unlike pure equity or bond funds, multi-asset funds invest across a variety of asset classes. This diversification is designed to reduce downside risk and improve consistency of returns.
Simple multi asset funds follow fixed allocations—say, 30% equities and 70% bonds for conservative portfolios, 50/50 for balanced, or 70/30 for growth-oriented strategies. But more sophisticated funds, such as those using a total return approach, go further. These funds aren’t bound by fixed benchmarks, giving portfolio managers the flexibility to adjust allocations dynamically in response to market conditions.
What are the core characteristics and goals of multi-asset funds?.
The primary objective is to achieve the best possible risk-return ratio by combining different asset classes. To do this, portfolio managers use various asset classes such as equities, bonds, currencies and derivatives. When one asset class underperforms, others may offset the impact. The portfolio is continually rebalanced to adapt to the prevailing market environment and smooth out volatility.
Is it enough here just to combine riskier equities and less risky bonds in a multi-asset portfolio – for example with a classic 60/40 ratio?
That is certainly a step in the right direction, but it is unlikely to be enough in the long term. It is better if risks are actively managed and the portfolio management can counteract market fluctuations. This is where the total return approach excels. These funds are not tied to benchmarks and can increase or decrease exposure to specific asset classes based on evolving risks and opportunities.
A key feature is the ability to manage interest rate risk. Most conventional funds have a positive duration,[1] meaning they lose value when rates rise. Flexible total return funds, however, can adopt a negative duration and benefit from rising rates. They can also diversify across gold, cash, alternative securities, or different currencies—always aiming to align with the investor’s risk tolerance.
How are risks in multi-asset portfolios managed in practice – and what exactly is the risk budget concept?
Effective multi-asset investing hinges on two principles: flexibility and active risk management. These are important factors in limiting losses and achieving attractive returns over the long term. Let's take a fund targeting volatility of around six per cent. If equities fluctuate by around 15 per cent, then a 40 per cent equity allocation keeps the overall risk within target. Now, other asset classes are added, which ideally have a balancing effect when there are stronger fluctuations in equities. These can be bonds, gold or currencies.
Think of it as a jigsaw puzzle: portfolio managers combine long-term return drivers like equities with lower-volatility assets to create a portfolio without exceeding the investor’s risk “budget.”
Why could multi-asset strategies be a good choice in 2025 – and beyond?
In recent years, many investors sought safety in bonds and money market funds, benefiting from higher interest rates. Meanwhile, equity markets—particularly in the US—have become increasingly concentrated. Just 10 stocks now account for over 30% of the S&P 500’s [2] market cap, an unprecedented level in the last four decades.
This concentration raises risk. A flexible, diversified strategy like multi-asset investing is well positioned to adapt in this environment, particularly for investors with moderate risk appetites seeking both resilience and growth.
Which asset classes do you think will perform best in 2025? Have equities become too risky for you? After we recently had two consecutive years of growth rates of 20 per cent and more, there are indeed voices saying that it can't go on like this forever.
We agree. Nevertheless, this does not mean that we simply want to reduce the equity ratios. In the long term, equities are needed to generate real returns. However, they should be well selected and flanked with other asset classes to reduce risks.
What about bonds? The central banks are currently gradually lowering the key interest rates. What is the effect of this?
At least in the case of the European Central Bank, that is true. I wouldn't be so sure about the US Federal Reserve. In the US, we first need to see what impact the announced tariffs will have. If these tariffs drive up inflation, the Fed's interest rate cuts could soon come to an end. A total return multi-asset fund can position for both outcomes by adjusting duration or using derivatives. There are bond strategies that can benefit from rising interest rates and those that are better suited to falling interest rates. This flexibility allows managers to respond quickly and effectively to changing policy dynamics.
Why is good risk management so important, especially in the current market phase?
Today’s environment is full of uncertainties: concentrated stock markets, inflation versus recession, political decisions with global ripple effects. Events like the sudden emergence of new AI models in China show how quickly market dynamics can shift and disrupt the stock market. In such times, active risk management isn’t optional—it’s essential.
What type of investor are multi-asset funds suitable for?
In principle, there are offers for every risk type, from conservative investors to risk-takers. The advantage of multi-asset funds is that investors do not have to manage their portfolio themselves, but instead a professional portfolio management team takes care of it for them.
The typical investor in a conservative multi-asset fund is probably someone who says: capital preservation is important to me, but I still need real returns. For example, this can be important when approaching retirement. Multi-asset funds can help achieve this through a thoughtful mix of equities and lower-risk assets to optimally balance risk and return.
Does that mean multi-asset funds can also be a good investment in retirement?
Yes. The aim of multi-asset funds is to balance risk and return in the portfolio. Conservative multi-asset funds targeting steady returns with moderate risk may suitable for more cautious investors who are looking for additional income to supplement their pension in retirement.
Fund classes that provide monthly distributions could be particularly appealing. For example, a monthly income of €333 could be withdrawn from a multi-asset fund targeting a 4 per cent return per year with a deposit of €100,000, without reducing the amount of capital invested.[3] This allows investors to generate a supplementary pension while keeping their capital cushion available at all times, in theory, should they need it.[4]