The ones to watch

One of the core arguments made by multi-manager fund providers is the idea that by investing across a number of different funds the risk of suffering due to poor manager performance is mitigated.

Therefore multi-manager funds should, in theory, perform better than single-manager funds in disappointing markets.

It is not too surprising, then, that the four IMA Mixed and Flexible Investment sectors, formerly the managed sectors, where most of the IMA-listed multi-manager funds sit, all produced positive returns of more than 30 per cent for the three years to March 30, according to FE Analytics.

However, while the IMA Flexible Investment sector performed best with a return of 46.06 per cent – more than 15 percentage points better than the IMA Mixed Investment 0-35 per cent Shares sector, which produced returns of 30.66 per cent – all four sectors were beaten by both the FTSE All Share and MSCI AC World indices, which returned 74.69 per cent and 58.84 per cent, respectively.

That said, while the two indices may have had a better overall return for the past three years they have also experienced extreme volatility, while the performance of the IMA sectors has been more stable suggesting that multi-manager funds’ greater diversification is having an effect.

But with approximately 300 multi-manager products available to investors through different tax wrappers, according to Defaqto, are there specific funds that have consistently outperformed or are expected to make a turnaround in 2012?

Defaqto’s latest Guide to Multi-Managers includes the results of its proprietary quantitative fund analysis rating, Defaqto QuantRater. Every quarter the rating tool looks at the past performance of multi-manager funds and their volatility-adjusted outperformance in the past 69 months, leading to a QuantRating (QR) of one for the lowest and five for the highest.

From its universe of approximately 300 multi-manager funds, 184 have received a rating since June 2008 – the others had insufficient performance data or were in the IMA Specialist or Unclassified sectors – of which only four funds have maintained the top QR of five since 2008.

These comprise three Flexible Investment funds – the £1.24bn M&G Managed Growth fund run by Graham French, the £68.9m Margetts Venture Strategy fund run by Toby Ricketts, and the Prudential Growth trust, which merged into the M&G Managed Growth fund in February this year – as well as the £3.49bn Jupiter Merlin Income fund run by John Chatfeild-Roberts and the Merlin team in the IMA Mixed Investment 20-60 per cent Shares sector.

In the three years to March 30 2012 the Margetts Venture Strategy fund, the smallest of these four, produced the best return of 59.72 per cent, closely followed by 59.04 per cent from the M&G Managed Growth fund and 44.91 per cent from the much larger Jupiter Merlin Income fund.