Are multi-manager funds worth the cost?

TERs typically range between 2 per cent and 2.5 per cent, according to Ian Aylward, head of multi-manager research at Aviva Investors. This compares to an average in the region of around 1.5 per cent with single manager funds.

Looking simply at the figures, especially over short time horizons, could suggest that this is expensive. Indeed, as an outsourcing solution, many discretionary managers have been keen to point out post-RDR that they are often cheaper - though the returns here are often unpredictable and it is not as simple to easily isolate the total cost of investment.

Multi-managers, as they well might, disagree that they are expensive. Arguing that as an asset allocation solution they are well priced - and actually cheap compared to accessing each underlying fund individually - the key, they say, is picking a fund that can deliver consistent performance.

Mr Burdett argues an investor in multi-manager propositions benefits from extra diversification and a double layer of active management expertise.

“Investing a larger sum of money than a single investor, a manager of a multi-manager fund should be able to negotiate competitive terms for investment. This means paying a lower cost than if an investor had invested directly in each of the funds that make up the multi-manager fund.

“Consistent performance over the long term leads to compounding cumulative returns that can often scale the performance tables.”

Bill McQuaker, head of multi-asset at Henderson Global Investors, says investors should also opt for the vehicle because there are tax advantages to a multi-manager portfolio.

“If an individual were to buy and sell individual funds this may give rise to a taxable gain - and the individual may also have to pay fund entry or exit charges.

“A multi-manager fund is able to buy and sell individual funds without incurring capital gains charges and can often negotiate lower charges on the funds they hold. There is only a potential tax liability when the investor sells the multi-manager fund.”

Multi-manager funds generally do have the same or lower annual management charges as single asset class funds, according to Cedric Bucher, head of business development of Architas.

But Mr Bucher continues that the total expense ratio - including legal and administrative charges - was generally greater than for single asset class funds due to the aggregate costs of the underlying funds.

Graham Duce, co-head of multi-manager funds of Aberdeen Asset Management, said it was too simplistic to brand multi-manager funds as expensive.

”Performance comparisons are always exclusively made on a net of fees basis and so overall costs are not relevant when making performance comparisons.”