Marcus Brookes, head of multi-manager at Schroders, says due diligence with this type of fund should not just be at the point of making a recommendation.
After fully researching your fund and carrying out the necessary due dilligence, Mr Brookes says it is important to monitor whether it behaves as you expect.
He says: “If, for example, you suddenly find a significant change in its asset allocation then you may want to reconsider whether it remains aligned with the risk profile of your client.”
It is important to ensure the fund’s holdings and structure is constantly under review to prevent any unintended build-up of risk, warns Richard Peirson, manager of the Axa Framlington Managed Balanced fund.
He says advisers should look out for any build-up of risk related to a particular economic scenario, region, sector or stock.
Mr Peirson says advisers should look for a fund that uses extensive due diligence within buy disciplines to ensure that they do not overpay as “earnings growth is key.”
“The proof of the process is in the performance. Investors should ask how any fund has performed against its peers over say five-year rolling periods, however it should be cognisant that past performance is not a guide to future performance.”
In all cases, James Dalby, market intelligence manager of Aviva UK Life, says the fund provider should be monitoring the risk profile and reporting it as appropriate for advisers’ consumption.
Equally, Mr Dalby says advisers who have access to performance/volatility monitoring tools may choose to maintain their own assessment.
When it comes to monitoring the risk profile of Balanced Managed funds, Adrian Lowcock, senior investment manager for Bristol-based Hargreaves Lansdown, says the fund group and manager should be responsible for controlling risk but responsibility for ensuring the fund remains suitable for a client lies with the IFA.
Mr Lowcock says: “Clients should also ensure they monitor things as it is better to act rather than complain if something has gone wrong or the fund has disappointed.”
