Fund of funds (FoFs) are not ahead of single manager funds in terms of top quartile performance over one year but over seven years they lead in every sector, according to new research.
Over one year to December 31 2007, the proportion of unfettered fund of funds in the top quartile was significantly lower than for single manger funds, according to figures by T.Bailey using Lipper Hindsight.
In the Global Growth sector for example, the proportion of top quartile FoFs was only 7.5% compared to 31.6% for single mangers. In the Active Managed sector the ratio was 17% to 35% while in the Cautious Managed it was 18.6% to 31.9%.
After three years however, FoFs have nosed ahead in Cautious Managed and Global Growth although the proportion of single mangers in the top quartile is still higher in the other sectors.
Over five years, the momentum has swung in favour of FoFs which are ahead in every sector apart from UK All Companies. The difference in the Cautious Managed sector is particularly marked; FoFs 53.8% and single managers only 8.3%.
Over seven years, FoFs are ahead of their single counterparts in every sector, which T.Baileys says backs up its view investors should be holding FoFs as longer term investments.
Jason Britton, co-fund manager at specialist funds of funds boutique T. Bailey, says: "You can compare this with a race between a 400 metre runner, representing single manager funds, and a four man relay team of 100 metre sprinters, representing funds of funds. The 400 metre runner might put in a strong first 100 metres but will eventually tire and in the end it's the team of sprinters that will win.
"The beauty of funds of funds is that we're always replacing funds whose performance is dipping, or which aren't suited to current market conditions, with funds that are performing better or that are better positioned to perform.
“In reality it may take a couple of years for the benefits of funds of funds to really kick in but over the long term - and we encourage investors to think long term - the resulting outperformance can be significant."
Glenn Meyer, director, fund research for S&P Fund Services, says it is increasingly difficult to lump the objectives of multi-manager funds together as there are many different types of portfolios.
“The most important thing is investors must check the manager is running the fund in the way he says he will. They also need to look at volatility and risk on the funds," he says.IFAonline
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From 6 April 2019