Your IndustryAug 19 2013

What you should know about multi-management strategies

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Advisers recommending multi-manager funds need to have a good understanding of the selection process and strategies of funds.

The starting point when it comes to process is the mandate of the fund, according to Bill McQuaker, head of multi-asset at Henderson Global Investors. The mandate will identify the types of fund and exposure the portfolio is permitted.

In the main, Mr McQuaker said most multi-managers follow some sort of strategic overlay, looking at macroeconomic factors and technical market data to determine how they want to ‘tilt’ the portfolio.

He said this was often followed by quantitative analysis to isolate funds that meet risk and return expectation targets or have certain style tilts, such as small cap exposure within an equity fund or interest rate sensitivity within a bond fund.

Qualitative factors such as the tenure of the fund manager on a fund, the strength of the team on the fund and behavioural characteristics are also considered.

Mr McQuaker said: “This often involves interviewing fund managers to fully get beneath the bonnet of a fund and get an understanding of how a fund might perform in different environments.

“Often multi-managers use specialist tools to see what the impact of adding a fund to a multi-manager portfolio may have on expected risk and return.”

Conducting qualitative research ensures that every nuance of the fund is understood and, according to Cedric Bucher, head of business development of Architas, it is an unrivalled way to determine whether a fund is suitable for the client’s needs.

However, Mr Bucher said it takes a great deal of time and resource, and it might not be possible to cover the entire fund universe.

The alternative, quantitative approach, is much less time-consuming and, Mr Bucher says, it is a good way to screen the entire universe efficiently. However, he warned it can overlook subtleties in a fund’s investment process, for example, or particular nuances of the fund.

“The best approach, therefore, is to combine both methods in a robust manager research and selection process, as multi-managers often do.”

Ian Aylward, head of multi-manager research at Aviva Investors, said a holistic approach carried out by sector specialists is appropriate and will result in better risk-adjusted returns.