Investments 

Can the multi-manager fund survive?

  • Gain an understand of multi-manager funds
  • Learn about how investment professionals use them
  • Understand how the market is changing
CPD
Approx.30min
Can the multi-manager fund survive?

Many investment strategies enjoy their moment of popularity, but certain mixed-asset funds have been demonstrating their usefulness for some time now. 

Investors and intermediaries seeking a shortcut to diversification have continued to pile into such portfolios, which aim to offer a one-stop solution for styles, strategies, assets and regions. But amid all this change, there is one type of diversified offering that has looked outmoded: the multi-manager fund. 

Funds of funds, as they are otherwise known, have faced criticism for their high charges. On top of this, the number of advisers outsourcing investment strategies has heaped further pressure on the sector. So too has recent regulation such as Mifid II, which magnifies the scrutiny over what investors are being charged.

Set against this is the fact that some multi-manager ranges have proven able to retain their popularity. The likes of Standard Life Aberdeen’s MyFolio range and Quilter’s Cirilium funds continue to find favour with investors, though interest in these is aided by both businesses being able to distribute the products, where suitable, through their own adviser networks.

Even these ranges, however, typically refer to themselves as multi-asset rather than multi-manager portfolios, despite the way they are run often being hard to distinguish from a fund of funds approach. That underlines how multi-manager, as a concept, is widely perceived to be out of favour.

Cost cutting

Of the funds of funds that are successful, it is notable that many are cheaper than rivals: cost may not be everything, but there is little tolerance any more for products that are simply perceived to be too expensive. 

Greater scrutiny has meant multi-manager costs have fallen, but so too have fees on similar products. Research by Defaqto released in March found that although multi-manager fees have fallen by nearly a quarter, a multi-asset approach is still significantly cheaper on average (see Table 1).

Table 1: Multi-manager and multi-asset fees, 2014-18 (%)

2014

Mixed 0-35%

Mixed 20-60%

Mixed 40-85%

Flexible

Average

Multi-asset

1.11

1.33

1.35

1.45

1.34

Multi-manager

1.53

1.78

1.71

1.75

1.73

2016

 

 

 

 

 

Multi-asset

1.09

1.07

1.16

1.31

1.18

Multi-manager

1.31

1.43

1.57

1.54

1.49

2018

 

 

 

 

 

Multi-asset

1.03

1.06

1.12

1.19

1.13

Multi-manager

1.17

1.42

1.35

1.41

1.37

Note: All figures are ongoing charges.  Source: Defaqto/Morningstar. Copyright: Money Management

 

In 2014, the average multi-manager fund charged 1.73 per cent a year. Two years later this had fallen to 1.49 per cent, and dropped again to 1.37 per cent by 2018. But over the same four-year period, annual fees for multi-asset funds fell from an average of 1.34 per cent to 1.13 per cent, meaning that although the gap has narrowed, multi-asset portfolios remain almost 25 basis points cheaper at a time when fees are under intense observation.

According to Ben Willis, head of portfolio management at Chase de Vere, this gap is significant for the future of multi-manager funds. He says: “Since the RDR, with transparency of costs and the industry becoming far more cost-conscious, [multi-manager funds] have been under pressure from both multi-asset funds and discretionary fund managers, who are generally providing a similar service but at a lower cost level.”

Multi-manager offerings are not the first mixed investment strategy to be written off. With-profits funds have been on the cusp of extinction for a number of years, according to many commentators and reports, but a newer breed has managed to remain a port of call for pension investors in particular. 

CPD
Approx.30min
  1. According to Mr Knight, what has been a consequence of more advisers outsourcing?

  2. Mr Chan says that for most clients on platforms, he would use what approach?

  3. Mr Willis says larger ranges, such as MyFolio, have distribution, and therefore have what benefit?

  4. According to Ms Minton, which firm has cornered the multi-manager market space?

  5. What type of offerings does Mr Chan expect to see more of in the future?

  6. What does Mr Yousefian identify as a key problem for multi-manager?

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  • Gain an understand of multi-manager funds
  • Learn about how investment professionals use them
  • Understand how the market is changing

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