I have a range of investment funds across a wide selection of companies and I have heard about multi managers and how they manage all my money for me. Is this a good idea?
Multi management is a basic evolution from the old monkey world of large insurance company funds. You’ll find these without any difficulty in your old and new pensions as well as many insurance bonds.
In 2006 £24 billion was invested in onshore insurance bonds of which, I suspect, a high proportion was invested into such managed funds.1 That’s amazing given their poor performance.
The difficulty with these arrangements is well documented. They are typically large funds with massive holdings in individual stocks which are very difficult to manage quickly.
If, for example, a fund has £4bn invested, they may have a spread across 100 stocks. If so, they may have £40,000,000 invested in one stock. How can they possibly move that cash quickly if they want to consolidate gains. Often the manager simply maintains a position of just investing and holding the cash, and of course thanks you for your payment for that. The consequence is a consistent underperformance of the market.
The other key issue here is the fact that each of these funds spread their capital across a range of financial and geographical sectors such as the UK, U.S. banking, technology etc. In this respect how can we reasonably expect a fund manager to be the best at each area?
Many of the managers have few, if any people on the ground in the countries they are investing into. How are they supposed to visit and keep a close eye on the companies they are investing into? The answer is they can’t.
And so the next stage arises where we need a specialist fund manager for each area. It makes sense after all to pick the best UK manager, best US manager and so on.
A multi manager claims to do that for you. They also claim to know how to decide which sectors your cash should be in (asset allocate).
For the most part however, the numbers are more than disappointing with very few adding value on a consistent basis.
Let’s take F&C multi manager for example. I measured its performance over twenty quarters. On average it was fifth decile (getting five out of ten) in each of the quarters.2 Its risk was sixth decile and its performance was also 5th decile.
So here we have a fund that is supposed to be adding value but is actually underperforming at best. Many of these funds can also have quite expensive charges layered on top of the normal fund charge making them riskier again in that they have to go that little bit extra to recoup the charges.
There is also the issue with their strategies. Whilst you may look at the performance of a fund today and see that they have actually done very well, the truth is that return may well have come from taking an undue risk or indeed from a good call.
Take the New star team. They have a very clear strategy and their Alpha fund is showing just rewards. Whilst their tactical fund is also showing good returns it must be borne in mind that the underlying investments have had an exposure of c40% in Asia.3 This has proved to be a good call but the same call could easily have turned against them.
We like Jupiter Merlin Growth, M&G managed, New star active portfolio all of which pass our criteria on risk and qualitative analysis.
It’s fair to say that to dwindle to just three from all the options available tells you something.
Few add value and these should not be a dumping ground for financial advisers to park money whilst relinquishing their responsibilities.
For a fact sheet on the better performing multi manager funds call Peter on 0800 0112825 or e-mail info@wwfp.net and take a look at our section on Investment
Source
1 Standard Life
2 Lipper
3 Sesame
The value of shares and investments can go down as well as up
Follow us on Twitter
Become a fan on Facebook
Subscribe to the RSS Feed