Just how different the investment strategies of funds of funds (Fof) providers are has been revealed...
Just how different the investment strategies of funds of funds (Fof) providers are has been revealed in a wide-ranging survey in MultiManager magazine, sister publication to International Investment. Groups have widely differing views on whether they are generating performance predominantly from asset allocation or fund selection.
The survey covered UK-based investment houses with both on- and offshore funds of funds, which themselves invest in both on- and offshore sub-funds.
Jason Britton, fund manager at T Bailey Asset Management, believes most returns come from getting asset allocation right. He said that, out of the major sectors in 2003, the best performing fund of the worst performing sector, North America, returned 6% less than the worst performing fund of the best performing sector, Global Emerging Markets.
Other groups believe most, if not all, performance can be attributed to fund selection. Lee Gardhouse, fund manager at Hargreaves Lansdown, said he does not spend time coming up with an asset allocation view. Instead, he generates it from the peer group and focuses his energies on selecting the right funds.
The survey also tackled multi-managers on such issues as how they narrow their fund universe down, how often they formally review portfolios, what drives performance and how many holdings typically make up a portfolio. Many, but not all, use some type of quantitative screen to reduce the universe of funds down to a manageable level.
Skandia Investment Management is one exception. Clive Hale, chief investment officer, believes starting with a quant screen can eliminate good managers accidentally. 'We start on a qualitative basis. We do look at performance but that is way down the list,' Hale said. Other groups, such as HSBC, are more quant driven, with funds typically requiring at least five years' track record and having to pass a rigorous screening process.
All groups surveyed include both onshore and offshore funds in their portfolios. There was also widespread agreement on the need to meet a manager before investing with him. Opinions did differ on whether long only multi-manager products should be attempting to produce absolute or relative returns.
Miton Investments, for example, is focused on delivering absolute returns for clients, but most other groups believe relative returns are more realistic.
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