Multi-managers open door to direct investing
Traditional funds of funds may struggle to cut costs and embrace a broader multi-asset approach due to a lack of resources preventing them from engaging in direct investing, Old Mutual Global Investors’ Anthony Gillham has warned.
In October last year, OMGI launched “refreshed” versions of its three Generation portfolios, to be managed by Mr Gillham and Paul Craig.
The move, in response to last year’s pension reforms, meant the portfolios moved from being “invested predominantly” in other funds to carrying out direct investing. The change can also be seen as a response to the rise of bespoke portfolios offered by wealth managers.
Mr Gillham said the switch had been driven by a wish to embrace a full multi-asset approach, as well as cost considerations and the desire to make more targeted investments. The fund now has direct holdings in mega-cap stocks, and has seen ongoing-charges figures fall.
“If you say you are going to do true multi-asset, you can’t afford to avoid any parts of the market. You need to embrace all of the opportunity set,” he explained.
His Generation funds now have weightings of between 5 and 15 per cent to direct equities and can also invest directly in bonds. But he suggested other offerings could risk being “stretched” by taking the direct approach.
“If we say we are truly unconstrained multi-asset, that means we have to look at all the options in how we invest. We have got the resources, I’m not sure that is the case everywhere.”
He added: “The change reflects our desire to build out a truly diversified multi-asset proposition. That’s going to include collective investment schemes run by some of the world’s best fund managers, but it’s right to not just constrain us to the multi-manager structure.”
OMGI is not alone in this move, with Rathbones deciding at the same time last year to allow its multi-asset funds, run by David Coombs, to include direct large-cap equity holdings.
Earlier this year Mr Coombs noted that the changes allowed him to more accurately stress-test a portfolio and back his own views.
“Cost is also an issue,” he added. “Saving 50 basis points of costs in a world of low returns seemed a good idea.”
Mr Gillham noted that in OMGI’s case, the funds could rely on a multi-asset team of more than 20 people and the expertise of the company’s specialist fund managers.
However, he dismissed the idea that fund of funds are struggling to justify their value.
“There’s always going to be a place for outsourcing to other funds,” he said. “There will be specialist parts of the market, whether in fixed income or the more esoteric equity side.
“You need to have real experts who spend their entire time looking at these areas. There’s always going to be a place for that expert management.”
On the equities side, the shift to direct investing has seen Mr Gillham include 20 large-cap stocks that he deems to have “shock-absorber” characteristics, such as British American Tobacco, Royal Dutch Shell, Nestlé, BP and HSBC.
“We like solid, safe, stable names to provide the shock-absorber characteristics we look for,” he said. “But we are also looking to diversify in terms of sector and cyclicality.”
KEY NUMBERS
5-15%: Weighting to direct equities in Omgi’s Generation range
20: Number of stocks included so far