Ian Aylward, head of multi-manager research at Aviva Investors, suggests investors who are not comfortable in selecting individual funds for themselves might like to consider multi-manager funds as an alternative option.
“Typically multi-manager funds are multi-asset and diversified, targeting either a return or risk level. As such multi-manager funds should form a core part of client portfolios.”
Most fund managers cannot consistently outperform in all conditions, Rob Burdett, co-head of multi-manager at F&C Investments, warns.
“No single investment house has a monopoly on skill. While an investor is still exposed to the risks inherent in each of the underlying funds in the portfolio, a multi-manager fund offers diversification across different fund managers and spread investment over many more underlying companies.
“This diversification means an investor is more likely to benefit from a lower-risk portfolio. There are a range of multi-manager products out there, catering to different investment objectives and risk appetite - some focusing on generating income while others target capital preservation or long-term growth.”
Of course, the reduction in risk and increased diversification means funds are also commensurately more likely to offer consistently rather than consistently excellent performance. Given the double layer of fees (of which more later), this has often led to them being labelled as expensive.
Cedric Bucher, head of business development of Architas, argues that multi-manager funds can be used within an asset allocation strategy to gain risk-balanced exposure to particular markets or themes, with the range of funds available expanding exponentially to meet this demand.
“In theory, there should be something for everyone. The investment universe, particularly the fund of funds space, has expanded greatly in recent years and investors can access global equities, bonds, property and even some more esoteric assets via a host of convenient packaged products.
“Consequently, there is a tremendous range of investment opportunities available, regardless of risk appetite or investment goals. However, with a growing range comes growing complexity as providers seek niche areas of the market to set themselves apart from their competitors.”
Mr Butcher adds that the recent Retail Distribution Review has imposed stricter regulation on advisers and their scope of advice, with more stringent governance and the new fee-based structure. This, he says, has remodelled multi-manager as an ‘outsourcing’ opportunity.
“An outsourced fund of funds solution also offers more automated rebalancing, allowing advisers to rebalance within the fund of funds without being liable to capital gains tax.
“An adviser could therefore rely on a multi-manager to create and run a portfolio of the most suitable and cost-effective investments for the client, as well as carry out the necessary ongoing monitoring.
“Some advisers use either our passive, blended or active multi-manager funds as a core to the portfolio while buying complementary satellite positions to build a bespoke solution for their clients.”
