Balanced funds are investment funds that allocate capital across several asset classes at the same time, typically equities and bonds. The idea is straightforward: Combining different securities is intended to reduce risk through diversification. In everyday language, balanced funds are therefore often referred to as multi asset funds. Over time, however, the terminology has evolved. Traditional balanced funds usually focus on the classic equity-bond mix, while modern multi asset funds often go a step further. In addition to equities and bonds, multi asset funds can also allocate to gold, commodities, real estate, currencies or other asset classes. They draw on a broader opportunity set and are widely seen as a further development of the traditional balanced fund concept.

It is important to understand that both fund types are typically retail funds structured as segregated assets under European fund regulation. For investors, this means that units can usually be bought and sold on a daily basis and that the invested capital remains protected even if the management company were to become insolvent. From an operational perspective, balanced funds and multi asset funds work like other investment funds: Many investors pool their capital in a single vehicle, which is then managed by a dedicated fund management team in line with the stated investment strategy.

Despite the shared objective of using a broadly diversified mix to spread risk, there are clear differences in the way these strategies are implemented. In particular, the degree of flexibility and the composition of the portfolio can differ significantly between traditional balanced funds and modern multi asset strategies. The following sections look at these differences in more detail.

A key differentiator between the two approaches is how asset allocation is managed. Traditional balanced funds often work with relatively fixed equity and bond weightings. They are therefore frequently classified by their equity quota: For example as conservative, balanced or dynamic, depending on how high the average equity allocation is allowed to be. A conservative balanced fund typically holds around 25 to 30 Percent in equities (with the remainder in bonds), a balanced version around 50 Percent, and more dynamic variants roughly 70 to 75 Percent in equities. In the case of fixed balanced funds, these ranges are defined in advance, and the portfolio management team only deviates from them to a limited extent. As a result, a fixed balanced fund is positioned as conservative, balanced or dynamic from the outset and remains within that framework.

Multi asset funds with flexible mandates take a different approach. They do not rely on static quotas but adjust the weightings of the different asset classes dynamically in response to market conditions. When equity markets are performing well, the portfolio manager can increase the equity allocation. If clouds start to gather on the horizon, the equity share can be reduced and capital can be shifted into more defensive assets. Some multi asset funds are even allowed to temporarily reduce individual asset classes to zero, provided the investment guidelines permit it. This degree of flexibility is rare in traditional balanced funds. The active steering of allocations can help capture opportunities and mitigate risks, but it also places high demands on the quality of the management team.

Beyond the equity-bond split, the multi asset approach differentiates itself through the breadth of its building blocks. Traditional balanced funds tend to rely primarily on the two core asset classes of equities and bonds. multi asset funds use a broader investment universe in order to tap additional return drivers and diversify more effectively. Typical components of a modern multi asset portfolio can include:

• Commodities, for example precious metals such as gold or industrial metals that can perform strongly in specific market phases
• Real estate investments, either directly or via REITs and real estate funds, to add tangible assets to the mix
• Capital market niches, for example high yield bonds in less researched regions or equity markets that are off the beaten track, such as Japan or certain emerging markets
• Alternative strategies, such as absolute return concepts or hedge-fund-like approaches that aim to generate returns independent of traditional market direction
• Volatility strategies that are designed to benefit from heightened market volatility, for example long volatility approaches that can add stability in periods of stress
• Currencies and derivatives used for risk management, for example option strategies that help limit downside risk

By spreading risk across a wider range of building blocks, multi asset funds can rely on more pillars than the traditional interaction between equities and bonds. Traditional balanced concepts often assume that equities and bonds will move in opposite directions over time. In technical terms, this is described as negative correlation. If equities decline, bond prices should ideally rise. This pattern has often held in the past, but it is not guaranteed for the future.

Multi asset managers are generally more flexible in how they respond to market shifts. They are usually managed without a rigid benchmark, which means they are not forced to track a specific index. This allows them, for example, to build up cash positions when they do not see attractive opportunities or to deliberately avoid certain segments of the market. A passive bond index fund, by contrast, typically assigns the highest weights to those issuers with the largest outstanding debt. This is a structural disadvantage that an active multi asset fund can address.

Naturally, a broader set of tools also brings additional complexity. For many investors, multi asset funds are less intuitive to assess, because multiple levers can be adjusted at the same time. In return, they offer the potential to manage risk more actively than a static 60/40 balanced portfolio with 60 Percent in equities and 40 Percent in bonds.

The risk and performance profile of balanced funds and multi asset funds depends heavily on the specific investment approach and the quality of the portfolio management. A simple either-or question such as "Which category is better?" falls short. What matters is a fund-by-fund comparison, and above all a fair comparison based on similar levels of risk.

The first step is to compare funds with comparable risk profiles. Both balanced funds and multi asset funds come in different variants: Conservative, balanced or dynamic. A conservative fund with 25 to 30 Percent in equities will naturally behave very differently from a dynamic strategy with 70 to 75 Percent in equities. Comparing the two directly would be misleading. Investors should therefore begin by asking: What is the maximum equity exposure and overall risk of the fund. Only then does a performance comparison become meaningful. 

Several key risk indicators help to classify and compare funds more objectively:

• Volatility: Volatility measures the typical range of fluctuations in returns. A fund with higher volatility tends to show larger swings in value and is therefore considered riskier. This indicator provides a sense of how stable or variable a fund’s performance has been over time.
• Maximum drawdown: This indicates the largest peak-to-trough loss over a given period, for example a calendar year or a multi-year horizon. The maximum drawdown shows how far a fund has fallen in a severe stress phase. For risk-aware investors, a lower maximum drawdown is an important signal of how deep losses might be in a worst-case scenario.
• Sharpe ratio and other risk-adjusted return measures: These ratios relate the return achieved to the risk taken. When comparing flexible multi asset funds with traditional balanced funds, it is useful to assess how effectively risk has been rewarded over time.

These metrics make it easier to understand a fund’s profile. Conservative balanced funds, for example, often exhibit significantly lower volatility than global equity markets, which means they are much less volatile. It would not be appropriate to compare such a defensive fund directly with a highly aggressive dynamic strategy. Instead, a conservative fund should be compared with other lower-risk solutions, such as money market funds or very defensive multi asset strategies. Investors should always start with their own risk profile and then look for funds within the same risk segment.

How do multi asset strategies compare with traditional balanced funds in practice. Their major advantage is greater room for manoeuvre, especially in periods of market stress. Thanks to broader diversification and more active steering, well-managed multi asset funds have historically been able to navigate severe market phases with smaller losses than a static 60/40 portfolio.

The year 2022 is a good illustration. For the first time in many years, equities and bonds both came under significant pressure. Rising interest rates and higher inflation drove drawdowns in both asset classes at the same time. The long-standing pattern of negative correlation between equities and bonds turned into positive correlation. As a result, traditional balanced portfolios suffered a "double drawdown", with losses on the equity side and the bond side. Many multi asset funds, by contrast, were able to limit losses more effectively in the same period. Their broader toolkit allowed them, for example, to reduce or avoid interest-rate-sensitive bonds and to make greater use of alternative building blocks.

This highlights an important point: Through active positioning and broader diversification, for example via commodities or volatility strategies, multi asset managers can mitigate drawdowns in ways that a traditional balanced concept, which relies primarily on equities and bonds, cannot.

The long-term effect of risk management is often underestimated, especially by investors who did not experience the major crises of 2000 or 2008 first-hand. A simple rule of "crisis arithmetic" illustrates the point: An investor who loses 50 Percent needs a subsequent gain of 100 Percent just to return to break-even. By contrast, an investor who limits the loss to 10 Percent needs only around 11 Percent to recover. That difference creates valuable room to manoeuvre: A gain of 11 Percent can be achieved far more quickly and with less risk than the 100 Percent required after a deep drawdown.

At the same time, the opportunity side should not be overlooked. Multi asset funds are not only designed to dampen downside risk. In phases of rising or recovering markets, they can increase risk exposure again by reallocating from defensive holdings into higher-return assets.

Whether this works in practice depends largely on the quality of the portfolio management. The key lies in setting the right priorities at the right time. Ideally, the management team will overweight those asset classes that currently offer the most attractive balance of risk and return. In reality, this is a demanding task, and not every multi asset fund automatically achieves higher returns than a straightforward balanced fund. There can be substantial differences between products. This is why it is so important to look carefully at risk indicators, track record and the actual allocation style of each fund. An important question is whether the additional flexibility is being used consistently and effectively. Here again, the Sharpe ratio and other risk-adjusted measures provide useful guidance.

In summary, multi asset funds offer a broader toolkit than traditional balanced funds when it comes to responding to changing market conditions. The combination of macroeconomic analysis and flexible allocation across multiple asset classes can lead to an attractive long-term risk/return profile that may outperform static 60/40 strategies in many environments. At the same time, greater flexibility also means greater responsibility: A multi asset manager needs a robust process and strong execution. For investors, this underlines the importance of careful fund selection rather than following labels alone.

Alongside strategy and performance, costs play a key role when comparing balanced and multi asset funds. Active portfolio management comes at a price, and multi asset funds that monitor many markets and adjust allocations frequently are often among the more expensive strategies. Investors should therefore keep a close eye on the total expense ratio (TER) and on any front-end loads.

However, focusing on costs alone does not go far enough. The key principle is this: Net performance is what counts. A higher cost fund needs to justify its fees through active value creation, otherwise it is not worth paying for. At the same time, comparisons show that in areas such as multi asset and fixed income the cheapest funds are not necessarily the most successful. Excessive cost cutting can even be counterproductive. Very low fee budgets often restrict a fund to standard investments and leave little room for niche themes or risk management tools such as hedging strategies. The result is frequently so-called benchmark hugging, where the fund behaves very much like an index because the management team avoids active risk. Opportunities outside the benchmark remain unused, which can lead to persistent underperformance. In other words, investors who simply chase the lowest fees may end up with a low-cost but largely average portfolio that offers limited added value.

The practical rule for investors is therefore: Consider costs carefully, but always in context. Every Euro in fees should pay for itself through higher net returns or lower risk. Ideally, investors compare funds not only by cost level, but by net performance over several years. This gives a clearer view of whether a fund truly earns its fees. The long-term compounding effect of costs should also be taken into account. An additional annual fee of, for example, 0,5 Percent can significantly reduce final wealth over several decades. Forgoing an additional 2 Percent of net performance per year, however, has an even larger impact.

The conclusion is straightforward: Quality has its price. A well managed multi asset fund can justify higher costs if it manages crises more effectively and delivers more stable net returns over the cycle than a static low-cost fund. The cheapest option, such as a purely passive balanced index or multi asset ETF, typically does not provide active risk management. Investors must be prepared to endure full drawdowns and accept that there will be no adjustment to new market regimes. In volatile environments, a professionally managed, somewhat more expensive fund can therefore be a rational choice.

In short, costs matter, but they are not everything. Investors should always consider what they receive in return for the fees they pay. An active multi asset approach that halves losses in a severe drawdown can, despite higher charges, create more value than a low-fee "one-size-fits-all" balanced fund that falls in line with the market. Ultimately, what counts is the risk-adjusted net return that reaches your portfolio.

Given the differences between the two approaches, the key question is which type of fund suits which type of investor. The good news is that both balanced and multi asset funds are designed for a wide spectrum of investors, from beginners through to more experienced market participants. However, there are important differences in focus and expectations.

• Traditional balanced funds, with their emphasis on equities and bonds and often relatively fixed allocation ranges, are mainly suitable for investors seeking a straightforward, transparent solution. Investors who believe in the long established equity bond mix and are comfortable with moderate fluctuations will find that diversified balanced funds can offer a convenient all in one solution. This is particularly true for long term investors who do not want to manage their own rebalancing. Balanced funds can play an important role in a buy and hold framework, because they provide an automatic, rules based redistribution between equities and bonds and tend to be less volatile than pure equity funds. A clear view of risk is critical. The extent of risk reduction depends heavily on the correlation between equities and bonds. If both asset classes move in the same direction, the risk dampening effect largely disappears. Investors should therefore not assume that a balanced fund will always provide cushioning in all market environments.
• Multi asset funds, on the other hand, are designed for investors who want to capture opportunities more actively and manage risks more precisely, without having to adjust their portfolio themselves on a continuous basis. Investors with an active mindset, who seek tactical opportunities and value flexible positioning, may be well served by an experienced multi asset manager. In this case, a professional team takes responsibility for asset allocation decisions and the selection of investment themes that many investors would find difficult to monitor consistently.

At the same time, multi asset funds can also be attractive for more risk aware investors, particularly those with larger portfolios or those approaching the decumulation phase in retirement. Conservative or balanced multi asset strategies aim to strike a careful balance between capital preservation and growth, which is essential for a smoother long term wealth path. By combining stabilising components such as gold, bonds or near cash instruments, they seek to limit drawdowns while at least preserving, and ideally increasing, the purchasing power of capital.

In periods of elevated inflation, when maintaining real purchasing power becomes a central objective, multi asset funds can play to their strengths. In addition to equities, they can incorporate inflation linked bonds, commodities or other instruments designed to protect against inflation.

However, multi asset funds also require investors to place a degree of trust in the portfolio management team and the asset manager. Strategies are often more complex and less directly comparable, which makes it important to understand the underlying philosophy and process. For institutional investors and more sophisticated private investors, multi asset concepts are particularly attractive because they offer a professional implementation of diversification and risk management that is difficult to reproduce in a self managed portfolio.

Less active investors who primarily want a simple and low cost solution may instead opt for a broad allocation using ETFs or traditional balanced funds. Ultimately, the choice depends on individual objectives. Is the primary goal to maximise return, or to smooth volatility as much as possible. Do you wish to be actively engaged with your investments, or would you prefer a simple framework with minimal intervention.

In broad terms, both fund types aim to deliver long term growth with reduced volatility and a balanced risk return profile. Multi asset funds seek to achieve this with a stronger active component and a wider toolkit. Balanced funds focus more on straightforward, well established building blocks. Long term investors can find suitable solutions in both categories, but should look closely at the details. Investors with a more tactical orientation, who want to benefit from specific market phases, will generally be better served by flexible multi asset strategies, where managers can respond more quickly. In the end, it comes down to your risk tolerance and convictions. Do you trust an active manager to make the right calls. Is maximum cost efficiency or maximum flexibility more important. These questions help guide the choice between a traditional balanced fund and a multi asset fund.

Both balanced and multi asset funds have their place. In an increasingly complex market environment, however, multi Asset funds offer several compelling advantages over traditional balanced portfolios. Because they allocate dynamically across multiple asset classes, they can respond more quickly to changing conditions and manage risk more actively.

This becomes particularly important in stress scenarios, when equities and bonds decline at the same time. In such phases, multi asset strategies can leverage their broader diversification and access to alternative return drivers. A well managed multi asset fund can limit losses and exploit opportunities that a static balanced fund cannot address due to its structural constraints.

This does not mean that every multi asset fund automatically delivers better results. For investors, the priority is to identify a strategy that matches their own risk profile and where the management quality is convincing. Traditional balanced funds remain sensible building blocks for investors seeking a simple solution based on the established 60/40 principle and who do not expect large swings in either direction.

Multi asset funds, by contrast, represent the modern evolution of this concept and, in many cases, offer a more powerful answer to the question of optimal portfolio construction. In light of the lessons from 2022 and other periods when historical correlations broke down, the guiding conclusion is clear: Multi asset funds often provide better overall prospects through their combination of return potential and risk diversification.

They are not a cure all and they require skilled management. For investors who value stability and adaptability, however, multi asset strategies are generally the superior choice. Put simply: The key difference between balanced and multi asset funds lies in flexibility and breadth, and it is precisely this combination that creates the decisive advantage.