With an increasing number of funds and asset classes available to investors, the way forward for multi-manager is to diversify risk even further, says Jonathan Arthur, investment strategist at HSBC Investments, thereby allowing advisers to incorporate their products into a core portfolio and strategy for clients.
"That's great in essence," he continues. "But how is it achieved? Multi-managers can do this by using sectoral building blocks, such as total return, specialist, income and growth, and buying core funds in those areas - and not only from London, but also from good performers in Europe and the US. This way, you mitigate risk and improve possible returns."
An adviser can then use this investment solution to tailor a core fund for their clients, mixing and matching all of the relative components to suit each client's current situation. "For example, a younger client may want a core fund comprised of the growth, total return and specialist strategies, while an older client may look to access the income portion a bit more," Arthur explains. "The big picture is that this will give advisers a long-term relationship with a client where they might only need to tweak, as oppose to redesign, a portfolio when a client's situation changes."
He goes on to argue that too many funds of funds are currently looking at the same holdings in the same funds, which means these funds quickly grow from millions to billions in size and this usually ends up with performance dwindling. "In order to find different options - particularly as there are some 55,000 funds worldwide - qualitative analysis is important," says Arthur. "The more analysts you have, the better your chances of researching these fund diversifiers across different asset classes, whereas smaller teams are forced to screen out some of the options due to their lack of scale.
"The most important things when looking for these managers are a clear investment process and philosophy and then implementation. What people don't want are fund managers who have had a bad nine months suddenly changing their philosophy and process - that's not why they've bought them."
With the number of options available to fund managers as wide as it has ever been and the imminent adoption of Nurs and Ucits III, including the possible use of derivatives, Arthur says multi-managers can now spread the net further. "Funds that were typically UK-centric can now be joined by other options and investment houses will continue to diversify both by asset class and globally," he says.
"As multi-manager essentially exists to take the strain off advisers by allowing them to outsource investment and spend more time with their clients, this strategy of using different investment blocks for respective clients is more of an 'insourcing' relationship with an investment partner that offers a clear, unbiased model with access to core holdings in all places."
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