Multi-Manager approach proving popular

Tuesday, 16th August 2011 16:37 - by Resident IFA

The IMA (Investment Management Association) has released figures showing that a substantial £3.8 Bn was invested into Multi-Manager (or ‘Fund of Funds’) investment funds in the first half of 2011. What is a Multi-Manager fund? My definition is that it is an investment fund which invests in other funds from a range of investment management companies. I see this as distinct from ‘Fund of Funds’, whereby the manager again invests in other funds, but chooses only from those run in-house by their company. Multi-Manager still requires investment skill from the appointed fund manager, yet provides wider investment exposure and that extra layer of investment expertise – effectively having ‘x’ number of managers on the case within the fund boundaries, rather than just him/her stock-picking. This all sounds good, right? £63.5 Bn of Investor’s money doesn’t lie? Well, it can be good. The last time I looked, the Jupiter Merlin range of Multi-Manager Portfolio’s were still pretty much best-of-breed. This is just as well, as they have some of the highest annual management charges (AMC) in the industry for the privilege...around 2.5%. So, you need 2.5% growth before breaking-even. In the case of these funds, they have (in my humble opinion) justified their charges by stellar performance compared to their Multi-Manager peers, and many other non-MM funds too. The reason for such high charges is that you effectively pay nearly twice over; reflecting the two levels of fund management – the charge for the headline Multi-Manager fund, and then some more for the underlying funds – whether there are 10, 20, however many. They probably attract a discount of sorts in order that you are not paying exactly 2x AMC (i.e. say the average fund has a 1.5% AMC, you would pay 3%). It begs the question, do you get value for money? Alternatively, you could invest in a Tracker fund for 0.5%, a decent Corporate Bond fund for around 1% AMC, and UK Equity fund for around 1.5% AMC. If you compare some Multi-Manager funds to this, they appear relatively expensive; albeit with their aforementioned potentially greater investment diversity and coverage. I think it is all down to a combination of personal preference and investment performance over time. If you can arrange a good, diversified portfolio of fund managers with proven track records over time for around 1.5%, this might lead to a similar outcome (performance) as Multi-Manager – for 1% less AMC. When all is said and done, I’d happily pay 2.5% per annum for a fund that has returned (say) 7% per annum over the past 5 years, rather than 1.5% for a fund that has returned 5% per annum over the last 5 years. Of course, there is always the mattress option! Until next time...