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With advisers feeling the pressure of the regulatory and administrative burden of fund selection for their clients, an increasing number are turning to multi-manager funds in order to spend more time on more general financial management issues.

However, these products are not suitable for everyone, especially when taking into consideration the higher management charges which tend to be levelled for them. As with all funds, it pays to do your homework and discover what each fund actually offers. Just because they have wider diversification does not mean, for example, they are low risk. Indeed, many funds use the freedom of the multi-manager structure to take more risks.

Both funds of funds and manager of managers have proved as susceptible as the rest of the investment universe to poor performance in the face of volatile conditions, and investors must now look at the returns with a greater level of scrutiny than was necessary during the golden days of the equity bull market.

However, it is important to ensure comparisons are made on a like-for-like basis. With fund of funds and manager of managers' strategies varying hugely from one another, as well as some funds offering only a fettered range of underlying holdings, this can be easier said than done.

To that end, in this review the focus is on unfettered funds of funds all residing in the IMA UK All Companies sector.

T Bailey

As a specialist multi-manager boutique, T Bailey Asset Management has a range of funds of funds that have, generally, performed well over recent years. The timing of the launch of its latest offering – the £1.8m UK Best Ideas fund – has been far from ideal though, being in the middle of a severe bout of market turbulence.

Since its launch in October 2007, it has been third quartile, although managers Jason Britton and Richard Martin are confident the long-term prospects for this – and all of their funds – is positive and that we are experiencing a natural dip in the market which will soon be rectified.

The fund has the target of providing first-quartile performance over a three-year rolling period, as well as outperforming the FTSE All-Share index over the same period. According to Morningstar, it has succeeded in beating the sector average return over the past three months, although this still meant it suffered a loss of 6.6 per cent, compared with an average of 7 per cent for its peers.

The fund is structured to have 10 holdings, all with an equal weighting of roughly 10 per cent. At the moment, the JO Hambro UK Opportunities fund has a slight edge, making up 10.3 per cent of the portfolio. The M&G Recovery and the BlackRock UK Dynamic funds are also popular holdings.

A sign of the team’s confidence is they have remained fully invested during the troubled times, in stark contrast to many of their competitors who have opted to substantially increase their cash holding. This is a position they intend to maintain.

Overall, T Bailey does not anticipate the start of another bull market yet, but is optimistic there are positive signs for future growth in the equity markets.

Gartmore MM UK High Alpha

The multi-manager team at Gartmore Investments has experienced a high level of upheaval and disruption over the past year. First, there was the departure of deputy head of multi-manager Marcus Brookes last autumn in the middle of a merry-go-round of manager changes across the industry. And, in recent weeks, Gartmore announced the “streamlining” of the fund of funds range, with head of multi-manager Bambos Hambi left “considering other positions within the company”.

Mr Brookes’ replacement, Tony Lanning, has now stepped up to lead the team, although the proposed changes to the range are yet to be announced.

Certainly the £2.3m Gartmore MM UK High Alpha fund has had a rocky ride over the past three years. Although it has achieved second-quartile performance overall since it launched in October 2004, it has lapsed into the third quartile on a number of occasions over the past three years.

According to Morningstar, the fund returned 21.8 per cent over the three years to 7 April, compared with a sector average of 30 per cent and is ranked 214th out of 259 funds. Meanwhile, over one year it lost 10.5 per cent compared with the sector’s fall of 9.1 per cent, and over three months it fell 8.4 per cent compared with a drop of 7 per cent for the sector.

The fund has a relatively concentrated portfolio of underlying funds, comprising M&G UK Select, Neptune Income, Rensburg UK Select Growth, CF Walker Crips UK Growth, JOHCM UK Growth and New Star Global Financials. The uniting theme for the portfolio is a neutral position on the UK, and a favouring of managers who take a bottom-up stock-picking approach and a “nimble” style.

The team is also keen to gain exposure to managers who are well positioned to tap into the market volatility, which they anticipate is going to continue for the foreseeable future. Over the longer term, however, the team predicts continued growth for equities in general.

Credit Suisse Multi-Manager UK Growth

The Credit Suisse multi-manager team has also gone through a period of change over the past year, with former co-managers Gary Potter and Rob Burdett leaving at the beginning of 2007 to join Thames River and Graham Duce and Aidan Kearney taking over the reins.

The £39m CS Multi-Manager UK Growth fund has struggled to turn in the sort of performance the team would hope for, falling into the bottom quartile over one and three years on a cumulative basis. Data from Morningstar to 7 April shows the fund returned 21 per cent over three years compared with 30 per cent for the sector average and is ranked 222nd out of 259 funds.

Over one year the fund fell 14.2 per cent, while the sector only suffered a 9.1 per cent fall. However, performance has picked up over three months on a relative basis, with the fund moving up to 185th out of a sector of 312 funds, although it still lost 7.6 per cent, with the sector falling by 7 per cent.

The top-three holdings are M&G UK Select (16.62 per cent), Saracen Growth Beta (14.39 per cent) and Melchior UK Opportunities (14.27 per cent), with the fund tending to work around having approximately 10 holdings in total.

Mr Duce and Mr Keaney have responded to the credit crunch and the ensuing volatility by taking a generally bearish stance on domestic stocks across the range of multi-manager products. In this fund, where that is not an option, the onus is on choosing solid funds with good fundamentals to ride out the rocky times. The pair have also increased their cash holding across the range of 12 funds.

Laura Mossman is features editor at Investment Adviser