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Adviser Fund Index

Old Broad Street Research’s decision to remove the ratings of the Credit Suisse region-specific multi-manager range this month has thrown doubt over the value of country-specific fund of funds offerings.

The move followed the removal of the A rating from Insight’s UK Dynamic Managed fund in May, as OBSR said the company was switching its focus away from its regional offerings.

The major problem with these products is they make it more difficult for managers to achieve good performance relative to their peer group as their investment universe is constrained.

“In the UK it makes sense as there are plenty of funds in your universe but in smaller regions it is a tougher environment,” says Patrick Armstrong, co-head of Insight Investment’s Multi-Asset Group. “Manager selection in region-specific funds is even more important.”

The importance of manager selection has become even more acute as a poor macro economic outlook pushes global markets into bear territory.

“You are hoping that managers at a region-specific level are picking their managers carefully,” says Kypros Charalambous, associate director at Barclays Wealth and an AFI panellist. “The managers will usually have to reassess their strategies when markets take a turn as they have done.”

OBSR’s decision to review, and in many cases remove the ratings on these regional focused funds reflects sentiment from both investors and people within the industry.

Armstrong admits that the UK Dynamic Managed fund, with its large exposure to British equities, has not enjoyed the success of Insight’s cautious products.

“Our UK fund is 37th percentile, which is all right,” he says. “We are not getting any flows into it at the moment, however.”

Dean Cheeseman, head of fund of funds at F&C, says he has not been convinced by the funds. “The problem is that region-specific multi manager products have difficulty producing good performance relative to their peer group,” he says. “You need to be holding risky positions to achieve it.”

The difficulty of outperforming their single-manager peers has left some of the AFI panellists confused as to who these products were intended to be marketed at.

Tim Cockerill, head of research at Rowan, says the region-specific offerings do not appear to fit with the fund of funds concept.

“When they first appeared, I was slightly confused by them,” he says. “The purpose of fund of funds was to take away the decision from the IFA or investor but then it became more sophisticated.”

As the products are operating in a single country rather than having to decide upon regional weightings in their portfolios, managers are forced to make sector allocation calls. This, says Cockerill, means they are effectively acting as a single manager product but with the addition of extra fees.

“With these region-specific products, managers were having to make sector allo- cation calls and I could not see who they were being mar- keted to,” he says.

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