Pros and cons of multi-manager

Paul Rutland, investment business development manager of Prudential, says the approach taken by multi-manager funds should ensure the best possible chance of over-performance in that sector.

But one possible disadvantage of multi-manager is that it can add an additional layer of expense - research and rebalancing needs will be constant, but diligently adhered to – and this will inevitably add costs to the portfolio.

However, Mr Rutland says these costs will be there whether they are done by a fund manager/research group or by the adviser, in the case of an adviser run portfolio.

Peter Fitzgerald, head of multi-asset retail funds at Aviva Investors, says it is impossible to discuss the pros and cons of multi-asset versus multi-manager as they can be the same thing.

He says: “When one considers multi-asset versus mono-asset portfolios, we believe multi-asset portfolios offer both clients and advisers a much more robust solution to their needs.”

However Mr Fitzgerald agrees the largest drawback of multi-manager compared with multi-asset funds is the double cost structure.

The main advantage of multi-manager funds is that they reduce the risk of investing in an underperforming fund, according to Francis Ghiloni, director of distribution and client management at Scottish Widows Investment Partnership.

With thousands of funds available in the market to research and monitor, Mr Ghiloni says keeping abreast of performance, fund manager moves and market trends is a full-time job.

Hence, he says outsourcing investment decisions to a multi-manager is becoming a very popular choice.

Mr Ghiloni says: “Outsourcing investment selection to an investment specialist such as a multi-manager makes sense for a number of reasons.

“Multi-manager funds are regularly monitored and rebalanced; they have clear risk-return profiles, transparent performance reporting and cost-efficiencies in switching between funds.

“Asset allocation and fund selection decisions are taken by an expert with the skills and technical resources to effectively analyse the market on the client’s behalf.”

In addition, multi-managers have direct access to the people that actually manage the money, meaning they can gain insights into performance and strategy that are simply not readily available to the typical client, he adds.

He said: “Furthermore, they can provide access to some of the best global fund managers. Many of these are not always marketed to the average investor and can be run by investment management companies that are able to pursue an investment style or approach unhindered by centralised asset allocation or investment processes.

“Access to these types of funds, which are sometimes highly specialised in nature, can prove very beneficial, particularly in times of extreme volatility.

“Gaining exposure to such specialised funds can further aide diversification and, if skilfully selected, will improve investors’ prospects of achieving consistent, positive returns.”