ment diversification across a wide spectrum of asset classes and geographic regions, as well as the ...
ment diversification across a wide spectrum of asset classes and geographic regions, as well as the blending of investment styles (for example growth versus value). In doing so multi-manager providers have access to research on a range of world class investment managers, some of which may not be available to non-institutional investors.
Each fund captures the expertise and skills of four to five specialist managers from different investment firms. Each manager runs a portion of the overall fund independent of the other managers. For example, a global growth equity fund may have an asset allocation of 50% invested in US equities, 30% in European equities, 10% in Japanese equities and 10% in global technology equities. A specialist 'best-in-class' manager is selected for each asset class from the larger investment universe that is available to us from our research programme.
These funds provide a 'one-stop solution' for portfolio diversification typically providing lower risk and neutralising style biases, while achieving a consistent pattern of above average returns.
Funds are tailored to match the risk/reward profile and investment horizon of the clients and vary in their target asset allocations among equities, bonds and cash. The degree of latitude given to the individual investment manager to vary their market exposure can impact the results.
The underlying concept underpinning multi-manager funds is diversification, so that specialist expertise is captured within asset classes, style biases and geographical regions. This approach differs slightly from that of a 'fund of funds approach' in that it offers investors more stability, has a prescribed risk/reward profile, and is typically judged against a benchmark rather than a peer group comparison.
The key to a successful multi-manager investment approach is:
• In-depth applications of quantitative and qualitative criteria to identify, filter, select and monitor the best investment managers in the world.
• Defining an active management of the targeted asset allocation and sector weightings for each portfolio.
• Careful blending and rotation of investment styles (for example growth versus value, small cap versus large cap) can help reduce risk and contribute to a more consistent pattern of superior risk-adjusted returns.
• Continuous evaluation and monitoring of performance, analysing compliance with investment guidelines and benchmark, style divergences, regular stock and sector attribution analysis are critical.
• On-going manager evaluation and correctly timing the replacements.
Banks, insurance companies, institutional investors, families, wealth offices and specialised investment firms are investing in quality multi-manager funds. Retail investors are offered a range of multi- manager funds customised to meet their investment needs:
• Long-term savings, education, and retirement plans.
• Managed funds for wealth management.
• Shari'ah compliant Takafol and Islamic equity funds.
• Structured investment products, for example, principal-protected funds.
• Theme funds, for example, global technology, healthcare, life sciences, energy and utilities.
A number of multi-manager providers have already established strategic relationships with major distribution partners in the region, and offer private label funds tailored to meet the needs of the distributor's end clients.
The recent global growth in multi-manager funds has been exponential ' although care must be taken in selecting the 'right' provider. This decision must be based on factors such as the depth and quality of the investment professionals, the quality of manager research and the due diligence process applied, the commitment to resources, the past track record, product innovation and development, and the client servicing standards. All these areas need to be addressed in a selection process.
To summarise, the application of multi- manager funds can help investors achieve:
• Access to world class investment managers, including those who do not offer services to retail investors.
• Extra levels of fund diversification across styles and managers (on top of asset allocation).
• Risk controlled funds to provide a level of risk that is fully understood and accepted by the clients, and is commensurate with their risk/reward profile.
• Enhanced portfolio risk transparency based on a review of actual buys and sells.
• Timely replacement of managers and the rebalancing of portfolios.
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