EUROPE - New research has highlighted how crucial the ability for multi-asset managers to move quickly into and out of asset classes is to optimise performance.

Barings, which carried out the research, said the extreme volatility of major asset classes had led to dramatic changes in the best and worst performers from year to year.

For instance, UK gilts were the second-best performing asset class in 2011, with a sterling total return of 15.6%, but the fourth-worst performer the year before, with a 7.2% return.

Conversely, emerging equities came bottom in terms of performance last year, with a negative total return of 17.6%.

In 2010, they had returned 22.9%, making the asset class the third-best performer for that year.

Barings said the study also showed why multi-asset investing - with an unrestricted mandate to dynamically move in and out of asset classes as the fund manager sees fit - had found strong favour with investors looking to achieve their targeted returns with less volatility than investing in equities alone.

Percival Stanion, manager of the £4.6bn (€5.6bn) Baring Dynamic Asset Allocation fund, said: "So far, 2012 is looking more positive for equities across the globe, but there are risks on the table that could provide a strong headwind to performance."

The fund is currently overweight equities, the allocation having been increased from 24% to 50% over the first two months of the year as the environment improved.

Stanion said: "We will, however, dramatically reduce this allocation as and when either the outlook for growth and earnings deteriorates, or the risk premia on offer is below that required to hold risk assets such as equities.

"Over the long term, equities will perform well, but one bad year can wipe out several good years of returns."

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