In this respect, multi-manager funds are able to offer a ready-made diversified investment solution and the potential for outperformance over the long term. For Nathan Sweeney, a Senior Investment Manager for Architas Multi-Manager, choosing a good multi-manager is an important step investors can take that may help ensure their income needs are met.
“A key benefit of investing in a multi-manager portfolio is diversification,” he says. “Not only can this type of investment offer exposure to a range of asset classes, but within those asset classes an investor could also get regional and sector-level exposure or tilts towards different segments of the market. A diversified portfolio may also help boost overall performance, as the aim of diversification is to increase the possibility that when some parts of the portfolio are struggling, others are doing well.
“It is important to select a provider that has the resources and expertise to identify the best-in-class options from across the universe of potential underlying funds. In terms of Architas, the carefully constructed house view is complemented by the knowledge and implementation skills of the individual fund managers. Architas also boasts a range of risk-profiled investment options, including a number of income-generating portfolios.”
An additional benefit of opting for an income-focused multi-manager is that this type of fund aims to provide exposure to lower risk areas of the market, which can be attractive to cautious investors. Mr Sweeney states that the underlying investments within some of the equity income funds in the Architas portfolios tend to be in larger companies that are dedicated to increasing dividend payments to their shareholders, or in potentially lower risk fixed income options with attractive dividend payments.
“It is fair to say that income portfolios generally aim to be invested in lower risk areas,” he confirms. “For example, when you invest in equity income-generating funds, there may be exposure to traditionally good dividend payers, such as utility and water companies, which tend to have a good forecast of what cash they expect in a given year. It is easier for an analyst to get to grips with these stocks and, therefore, there may be less volatility in the share prices. It helps us satisfy our strict controls on risk.”
Moreover, multi-managers have the scope to diversify into assets that tend to have low levels of correlation with equities and fixed income, such as property, money markets or alternatives. Inclusion of direct property exposure, as well as investments in more esoteric options including infrastructure, may work not only to boost capital growth, but also to diversify the income stream.
“I would urge investors to consider multi-manager as part of their income portfolio,” concludes Mr Sweeney. “The opportunity is there to tap into diversified income with potentially reduced overall volatility and the potential for outperformance over the long term. In an environment where an increasing number of people are seeking income-generating investments, whether that is part of retirement planning or for general income in a low interest-rate world, multi-manager has a big part to play.”
Past performance is not a guide to future performance. The value of investments and any income provided by them can go down as well as up and is not guaranteed. Clients may get back less than they invest. The value of investments can also fall as well as rise purely on account of exchange rate fluctuations.
