Given there are so many tools, systems and platforms in which advisers – and their clients – can mix and match investments, risk profiles and fees, why go down the path of multi-manager funds, which appear to be a 1990’s solution to a 2015 problem?
Despite changing times, some things still stay the same with Yeo stating that even with the best tools and research planners can’t match it with fund managers for access to underlying investments, lower fees and professional portfolio management and investment expertise.
“I don’t think planners are equipped to run their own multi-manager style funds. Aside from the staffing and resourcing there are questions around compliance and due diligence – that is, picking the managers – and the need to manage the level of risk management that comes with multi-manager strategies,” Yeo said.
He also cited the benefits of scale and access to assets and managers, which typically are not available to retail investors or financial planners.
Robertson said planners should not consider what they might gain by managing portfolios in-house but rather what the benefit was from using established solutions.
“Planners get to delegate the investment tasks to professionals who can move assets better and faster than they can at a much lower cost. The typical multi-manager fund operates at around 85-90 basis points, which is comparable with a large cap Australian equities fund when it comes to investment costs,” Robertson said.
And it is here that the other sound reason for using multi-manager funds – money (that is, how to avoid losing any and gaining as much as possible) – comes into play.
FinaMetrica co-founder and director, Paul Resnik, said research conducted in the USA found that buying into one asset class brought a set level of volatility and performance but that the addition of other asset classes reduced risk and volatility at a greater rate than it reduced performance.
“Looking at the history of multi-manager funds on average they have typically returned purchasing power plus some,” Resnik said.
And they have done well as markets have swung back and forth as well.
Data compiled by FinaMetrica indicates that a multi-manager, multi-asset portfolio of 50 per cent growth assets and 50 per cent defensive assets suffered lower declines during downturns and had faster recovery periods than a portfolio of 100 per cent growth assets.
Neuberger Berman chief investment officer, Erik Knutzen, said this is because multi-manager and multi-asset funds can deal with risk relative to returns in a wider way than single asset vehicles.
“It is hard to forecast risk but not as hard as it is to forecast returns, which you are likely to get wrong if you try. However we can guess the risk of equities compared to bonds and to cash because those relationships are consistent,” Knutzen said.
“Risk is a market issue but usually when market stocks go up it is ignored when it should be talked about. A focus on risk is a focus on outcomes and solutions compared with just trying to meet or beat the benchmark.
“Investors need as many tools as they can because a focus on equities alone is a focus on just market returns while a multi-asset or multi-manager approach is driven by outcomes.”
Read part one of Jason Spits’ report on multi-manager funds: Multiple choice on offer for planners
Read part three of the mutli-manager funds report: Planners reassessing multi-manager use.
