I often get asked where should I invest my money, or what market is going to be produce the best returns? Sadly this is almost impossible to predict, and so as an adviser we try to look to find ways to achieve a more consistent return over the medium term.
Multi-manager is a means of investing where you can access a wide range of different fund managers through a single investment fund. It is based on the premise that no single fund manager can excel in all markets, all of the time. Different markets require different investment approaches and skill sets, making it unlikely that any one manager will be the best in all markets. By blending multiple managers, across investment markets, in a single fund, the multi-manager approach aims to reduce the volatility of returns.
With thousands of investment funds available in the market, making the right choice for your portfolio can take time, investment knowledge and skill. Multi-manager funds are typically managed by dedicated fund managers, who scour the industry and select the managers they expect to deliver the best returns. They also decide on how best to ‘blend’ these managers to achieve optimal returns and actively manage the allocation to different assets as market conditions change. These professional teams continually monitor the performance and activity of the managers held on investors’ behalf to ensure they remain appropriate.
Diversification
Multi-manager funds typically offer a much higher level of diversification than single manager funds, spreading investment risk across different managers and different asset types. Diversification has long been recognised as an effective portfolio management technique as it reduces investors’ exposure to the risk of any one particular sector or asset class.
Ease and simplicity
Multi-manager funds provide access to a diversified portfolio of fund holdings but with the administrative burden of just one fund — making it much easier to keep track of your investments.
How risky are they?
Like all investment funds, multi-manager funds can vary widely in their objectives, their investment approach, their underlying assets, and accordingly, in their level of risk. Some invest in a variety of markets and asset classes, while others focus on the same asset class, but hold managers with different investment styles or biases, such as value, growth or smaller companies. In broad terms, the main source of risk for multi-manager funds is the risk inherent to the investment markets in which they invest, such as shares, bonds or property. This is no different to ‘single manager’ investment funds. It can be argued that multi-manager funds carry slightly lower risk than single manager funds investing in the same investment markets for a number of reasons:
In most cases, investment risk is spread across a far greater number of stocks and shares.
Multi-manager funds tend to be less dependent on any one manager’s ability to perform.
Certain investment approaches or styles are not suited to all market conditions. A multi-manager fund can reduce investors’ reliance on a particular style and enable them to benefit from a range of different approaches.
Costs
Costs can be slightly higher than for single manager investment funds as there are two layers of charges: on the underlying investments and on the multi-manager fund itself. However, these additional charges are often a fraction of what it would cost an investor to buy and trade the underlying funds separately. This is partly because multi-manager fund providers with significant size and scale can negotiate very attractive rates with managers and do not pay upfront or exit fees when trading funds.
Multi-manager funds offer the potential for long-term growth and a convenient way to diversify risk. Your financial adviser will be able to recommend investment funds that are suitable for your own needs and that best fit your specific risk profile.
The writer is Regional Director at Acuma-Independent Financial Advice. Opinions expressed are his own and do not reflect those of Gulf News.
