What does multi-manager mean? Multi-manager is a catch-all term for funds that hold underlying inve...
What does multi-manager mean?
Multi-manager is a catch-all term for funds that hold underlying investments managed by other investment managers. Multi-manager funds are broadly split into two categories - fund of funds and manager of managers.
What's the difference?
With a fund of funds, the manager constructs a portfolio by buying funds that are commercially available, either onshore in the UK or FSA-recognised funds listed offshore. A manager of managers awards specific mandates to external fund managers rather than investing in pre-existing funds.
Is one better than the other?
Not necessarily. The advantage of a fund of funds is that the underlying managers do not have to do anything different to be included, so they can remain completely focused on getting the best out of their fund portfolio.
The advantage of manager of managers is that the multi-manager awarding the mandates has greater control over the overall shape of the portfolio. However, so far funds of funds have tended to show better performance than manager of managers vehicles.
Why would I want a multi-manager fund?
There are a couple of reasons; A multi-manager fund offers greater diversification than a single-manager fund, which should help protect the portfolio from heavy losses if one of the underlying funds or managers sees a dramatic downturn in performance.
Also, the fund managers running multi-manager funds are usually highly experienced fund managers who have greater access to the fund manager than an ordinary investor would. This enables them to make more informed decisions as to where to invest, and because their time is focused on analysing the fund market, they may be able to spot opportunities in funds or managers that have not yet built a profile in the wider market.
Where do I find multi-manager funds?
The majority of multi-manager funds are to be found in the managed fund sectors - Active Managed, Balanced Managed and Cautious Managed. These sectors set different limits on, for example, the proportion of the portfolio that can invest in equities.
The multi-manager sets the asset allocation, which means investors benefit from a ready-made portfolio that should suit their risk profile and return objectives. There are also many multi-manager funds in the Global Growth sector, offering diversified portfolios of funds investing in markets around the world, as well as funds in specific sectors such as UK North America, Asia Pacific and Global Emerging Markets. There are even a few multi-manager bond funds.
What are the benefits of outsourcing?
While many advisers like to spend time analysing funds, meeting fund managers and building investment portfolios, many more find their time is better spent advising clients on, say, their pension options or estate planning.
Multi-manager can be a useful solution for advisers whose main business is financial planning and who may feel happier leaving the day-to-day investment portfolio management to a multi-manager whose entire focus is on selecting the best funds or managers to suit their fund's objectives. A multi-manager fund can also be ideal for clients with relatively little to invest, as it allows them to access a diversified pool of investments within a single fund.
How much does all this cost?
Multi-manager funds often come in for criticism for "double charging". Whether it is a fund of funds or a manager of managers, the underlying investment managers have to be paid, either through the annual management charge on the underlying funds or through a fee agreed at the time of taking on a specific mandate. The multi-manager will also charge for investment into the multi-managed fund.
However, as multi-managers are usually large investors, they are able to negotiate better terms with the underlying managers than would be available to an ordinary investor. Ultimately what investors are paying for is the expertise of the multi-manager, and if he gets his fund or manager selection right, the investor should be rewarded with better risk-adjusted performance.
Anything else I should know?
Under the FSA's new rules for collective investment schemes (Coll), multi-manager funds that opt for non-Ucits retail scheme (Nurs) status have a wider range of investment options available to them. Funds of funds can now hold a greater proportion of each underlying fund than was previously permitted, which could be an advantage when investing in a new fund that is still very small.
Under Nurs, multi-managers can also invest directly in property and some commodities such as gold; they can hold exchange-traded funds and are able to use cash as an asset class in its own right, which can help reduce risk in uncertain markets. The decision by the FSA and HM Revenue & Customs to allow Nurs funds to be held in an Isa has been a big driver in the conversion of multi-manager funds to Nurs status.