Multi-manager portfolio as an option for investors

An investor looking to build a well-diversified portfolio would typically be faced with the following dilemmas:

"How do I choose investments that will meet my objectives when there are so many funds and asset classes to pick from?"

"And how should I adapt my portfolio whenever there are fluctuations in market conditions or when a fund manager changes?"

A major advantage of multi-manager funds is that such difficult investment decisions are left in the hands of the expert fund managers who analyse thousands of funds and blend them in a way that result in the greatest potential to generate higher returns at a reduced risk. The multi-manager team keeps a close watch on the market for you and fine-tunes the portfolios on an on-going basis, making changes whenever necessary.

Tough

It's tough being an investor. Choosing investments for your portfolio is more challenging than ever before, and although restricting your choice might seem an obvious solution, this involves a risk: research shows that only a minority of fund managers can produce consistent returns in different types of market conditions.

For example, out of 48 funds that were among the top 25 per cent in the European Equity sector from 1995 to 2000, only 15 were able to maintain their top ranking position over the following five years. In fact, 13 of them sank into the bottom 25 per cent.

So, what's the solution? Due to these challenges, some people may opt not to invest at all, while others might opt for an index-tracker fund, which tend not to offer the growth or income potential that actively managed funds do.

A multi-manager provider builds portfolios of funds to achieve a variety of investment goals. It identifies the most attractive funds and brings them together to meet the varied needs of its investors.

This means that you will no longer have to constantly keep an eye on the market, as the multi-manager's analysts will monitor it and will change the blend of funds in your portfolio whenever they believe that better opportunities are emerging.

What are the benefits of a multi-manager portfolio?

Diversification: your money will be spread across a number of different investment companies, so you can take advantage of a variety of investment styles and processes.

Access: not only do multi-managers have the research capabilities to analyse thousands of funds, they may be able to invest in institutional and closed-end funds, or funds managed by smaller, less recognised boutique fund houses.

Simplicity: a single investment decision gives you a ready-made portfolio of funds with ongoing management and monitoring.

Performance: It could help you to achieve higher, more consistent and risk-adjusted returns by identifying the most effective blend of funds from across the market.

What multi-manager portfolios are available?

There can be a spectrum of portfolios, which can divided into distinct 'families' and which can be sub-divided into either core or specialist portfolios.

Core portfolios can be used as the 'cornerstone' of an investment strategy. This category includes something like a global high income portfolio, aiming to offer a steady income, which can be reinvested for long-term growth. It also includes two Multi-Asset Portfolios that aim to generate long-term growth through diversified combinations of different types of investments (i.e. shares, bonds, property, commodities and cash).

Good potential

Specialist portfolios are designed to complement your core investments. They offer the potential for strong returns, with a controlled level of risk, by focusing on emerging markets, a specialist industry sector or a geographical region.

In managing multi-manager portfolios it is not always the top-performing funds that work together best. It may be far more important to identify a variety of minimally correlated funds (i.e. funds that follow a variety of investment strategies) that will behave differently in varying market conditions. By blending these different funds into a single portfolio, the combined performance would be more balanced, and, over the years should deliver more periods of positive returns.

- The writer is director of sales,Fidelity International, Dubai.