Past performance is not a guide to the future. The value of investments can fall as well as rise. The views expressed in this article are those of the author and do not necessarily represent the views of Standard Life. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of this content.
Multi-manager investing - Simpler than it sounds
Everyone is aware that the placing of all your eggs in one basket is far from wise, which is why investors are always told to diversify their portfolio. But knowledge of the need to diversify does not solve the problem of which funds to choose. Multi-manager funds spreads the investment risk by investing in funds that invest in a range of stocks.
You may ask why you couldn't do this yourself, and the answer is that you could. But with thousands of funds to choose from in the market place, can you really afford to spend the time analysing them all in order to get the right balance?
A multi-manager has the market expertise, the resources to perform the research and the size to ensure minimal costs to you. These factors allow the multi-manager fund to incorporate the crème de la crème of the fund managers out there.
What is multi-manager investing?
Multi-manager investing acknowledges that no one fund management house has the monopoly on the investment talent and therefore it is very unlikely that you will find one that is good at every fund. Therefore it makes perfect sense to spread your client's investments, effectively employing many investment managers from different investment companies to manage a portfolio.
Good performance rarely lasts forever. In fact, research shows that less than 20% of fund managers achieve above average performance against their competitors for three years in a row*. Market dynamics, investment companies and fund managers change over time and all of these changes require constant managing. Every fund is pursuing consistent positive investment performance, but a single fund is under certain investment constraints, e.g., maximum holding in a certain stock. Multi-manager funds have greater scope than individual managers when they are considering where they allocate their assets; in fact they are free to search out the richest pickings.
*Source: Lipper Hindsight Growth TR NIRX £ figures three discrete years to 31/08/06
With this ability a multi-manager fund can blend different types of funds together into a single portfolio to provide the consistency that every investor craves, but is seemingly so difficult to attain.
Multi-manager funds have the size and ability to access investment areas previously beyond the realm of most investors. An example of this is the Credit Suisse Multi-manager Constellation Fund, which offers access to a range of small boutique funds. Such benefits have seen the multi-manager investment proposition grow rapidly over the past few years.
Links to other newsletter stories
Help with IHT planning: Part 1
Help with IHT planning: Part 2
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• Past performance summaries
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