InvestmentsOct 1 2020

Multi-manager funds offer exposure to a range of assets

Supported by
Close Brothers Asset Management
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Supported by
Close Brothers Asset Management
Multi-manager funds offer exposure to a range of assets
Ylanite Koppens, Pexels

He says: “For many private investors and smaller advice firms, getting time and access to a fund manager can be quite hard, one of the advantages of an outsourced investment proposition, is that, by pooling the assets of multiple clients,  we can have greater contact with fund managers, and so understand their process better, which is very helpful for clients.” 

Fee fears

Rob Morgan, pensions and investment analyst at Charles Stanley, says a major issue with multi-manager funds is the extra layer of costs, as the client pays both the multi-manager fund manager and the costs of investing in the underlying funds. 

Costs are also a concern for Andrew Surrey, senior national development manager at Vanguard. 

He says: “The puzzle multi-manager funds look to solve is one the industry has wrestled with for decades; investors’ entirely reasonable demands for smoother returns and more predictable outcomes.

"From the 1950s, with-profit bonds often fulfilled this role for UK investors. This practice declined due to mis-selling, high costs, and concerns over lack of transparency.

"Institutional Investors started blending fund managers from different fund houses back in the 1980s, with retail multi-manager funds taking off around the millennium.

"However, these 'fund of funds' type products in turn struggled with transparency and performance, impeded by the layered costs involved. Certainly, since the global financial crisis and the Retail Distribution Review, we have seen an acceleration of advisers buying lower-cost, less tactical multi-asset products."

Rob Burdett, who jointly runs a range of long-established multi-manager funds at BMO Global Asset Management said there may also be a benefit to the adviser and the client in terms of fees. 

He says: “There are different routes an adviser can take, particularly once they have decided to outsource investment management.

"One of the advantages of a multi-manager fund is that they can negotiate on fees, buy institutional share classes and that means lower fees for the end client. This makes the cost of ownership much less expensive.” 

He adds that multi-manager funds can allow a client to have exposure to more esoteric and boutique funds, which the adviser might not have the time to research such products, or where the minimum investment level may be too high for an individual advised client to be placed into such a fund, but if held via a multi-manager fund, then a relatively small amount of the clients assets can be held in an alternative fund.

Specialist talents

Mr Burdett says this capacity to do research in specialist areas is key to the role a multi-manager fund can play in a portfolio. 

He says: “This extra research capacity is key. And that combined with the ability to buy institutional funds, is a major way multi-manager funds are differentiated.”

Multi-manager funds can buy funds typically only available to institutional investors, due to the minimum level of investment required. Institutional funds tend to have lower charges than retail funds, in Mr Burdett’s opinion, making multi-manager funds more affordable. 

He says: “We have significant investments in funds that are not available to advisers otherwise, funds that perform well and have lower costs than the typical retail fund.”

Mr Morgan believes using some passive investment products and investing directly in some equities is a way to keep the costs associated with a multi-manager strategy lower. 

Justin Oliver, deputy chief investment officer at Canaccord Genuity, says he believes the extra value added by asset allocation and fund selection justifies the extra costs.

He says: “Identifying funds that are less well known is a key part of what a multi-manager fund should offer. And being able to invest in the winners of tomorrow should be part of that.” 

Cameron Falconer, multi-manager analyst at Aviva investors says the advantage to advisers of using a multi-manager strategy is that it saves time and resources that would otherwise be deployed in fund selection and asset allocation, instead enabling the adviser to concentrate on other areas of client need and of business growth.

This is a standard argument in favour of outsourcing investment management; Mr Falconer added that multi-manager fund managers are able to constantly meet with and monitor the performance of the underlying fund managers. 

James Davies, investment manager of the Close Managed Funds range says that fund houses are quite willing to negotiate lower fees for clients with larger pots of assets, but such negotiations tend only to happen when a sufficient scale of assets has already been reached. 

One way some multi-manager funds can get lower fees, and also potentially, more control over the way the assets are managed is via segregated mandates, where a new fund is created just for the assets of the multi-manager. 

John Moore, senior investment manager at Brewin Dolphin says there are also potential tax advantages to holding assets via a multi-manager fund, as individual investments can be sold from within the fund without incurring a capital gains tax liability on any profit made from the investment, because the actual fund of funds is not being sold.  

He added that multi-manager funds have the capability to invest in relatively illiquid asset classes, but still provide the end investor with the daily liquidity of an open-ended fund, allowing for a greater level of diversification than might otherwise be the case.

Mr Burdett said this allows for investments into “more sophisticated” investment products than might be the case in a portfolio typically, due to this ability to invest in less liquid assets.

He believes this capacity helps to boost investor returns over the longer term.