Performance and investment styles of international multi-asset funds during market crises

Paulo Leite ()
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Paulo Leite: Polytechnic Institute of Cávado and Ave

Empirica, 2024, vol. 51, issue 3, No 8, 783-805

Abstract: Abstract This paper presents a comprehensive investigation into the performance of multi-asset funds investing internationally. Based on a custom-built conditional multi-factor model, which includes several bond and equity-related factors, along with time-varying betas and alphas, we show that funds in our dataset significantly underperform from 2004 to 2021. This evidence holds even on a before-fee basis, with funds investing predominantly in bonds exhibiting significantly higher alphas than funds investing predominantly in equities. Since multi-asset funds may better hedge against market downturns than equity or bond funds, given their higher asset class diversification, we also evaluate performance for crisis and non-crisis phases separately. The results show that, during market crises, international multi-asset funds perform significantly better than in non-crisis times, achieving neutral performance. However, while funds that favour bond investments perform similarly across different market phases, funds that prioritize equity investments perform significantly better during crises. Consequently, multi-asset funds with higher bond holdings can be a better option during non-crisis periods, while funds with higher equity holdings should be preferred during market downturns. This somewhat puzzling finding seems to be related to funds’ cash holdings. By providing a better understanding of the asset allocation decisions of international mutual fund managers, as well as of their impact on fund performance, this work has meaningful implications for investors.

Keywords: Multi-asset funds; Mutual fund performance; Market crises; Multi-factor models; Conditional models (search for similar items in EconPapers)
JEL-codes: G01 G11 G15 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10663-024-09614-2

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