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Dispelling the myths of multi-managers
Tales of double-charging, performance dilution and the possible effects of daily pricing hang around multi-manager funds, but there may be more to these yarns than meet the eye
Both Mr Lanning and Mr Yousefian are agreed on this point: certainly over the short term it can have an impact and should be monitored, but over the long term the anomalies will be smoothed out.
“There are discrepancies that you have to be aware of,” stresses Mr Yousefian, “as they can throw up anomalies up from time to time. But this is an opportunity in itself: if a particular investment has a particular value at 7:30am then you have the window of the previous day to make a decision as to whether or not to buy it.
“But on a medium to long-term basis these price anomalies do not make much difference. You should not be looking at collectives for a short-term investment anyway.”
“It would be easier if they all priced at the same time,” adds Mr Lanning. “It can lead to short-term fluctuations and if the market moved very sharply at 3pm it could impact those funds that value at 3pm rather than midday. But then if you have a portfolio of 10-15 different collectives it will only impact on a couple of those.”
“But, he adds, backing up Mr Yousefian’s point, “in the round you should only be looking at performance over the long term.”
In essence, then, multi-manager or funds of funds can be a little bit more expensive. But, as the managers argue, you are paying for additional skills that should hopefully provide excess alpha. There are no clear statistics that prove one way or the other whether either strategy will necessarily underperform the sector average because they are investing in several underlying funds.
Mr Lanning employs a medical simile to sum up the appeal for IFAs. “We as multi-managers are not trying to take away the role of the IFA,” he says. “They know the client far better than we could ever do. The way I see it is they are there to give the initial diagnosis to the client: the IFA is the general practitioner and if they think it is an appropriate investment, they will pas them on to us as the specialists to manage their money.”
Hugo Greenhalgh is editor of Investment Adviser
