Retail fund of fund sales hit a record high in the second quarter of 2010. Investment Management Association data shows that multi-manager products achieved net inflows of £2.3bn between April and June, and accounted for almost £1 in every £10 of gross fund sales. The spurt boosted fund of fund assets to £46bn – 40 per cent higher than the equivalent period last year.
The case for growth in the multi-manager sector is well established. Under the retail distribution review, advisers who want to retain their independent status will be required to demonstrate they are offering a broad selection of investment products to their clients. As a result, the shift towards outsourcing asset allocation and fund selection is likely to continue, as implementation of the review approaches.
Beckett Financial Services portfolio manager and Adviser Fund Index panellist Sam Owen expects the trend to strengthen. “At Beckett, we have advisers who concentrate on giving advice and I am here to do fund research and selection,” she says. “But for smaller organisations, where the adviser is trying to do everything, and with so many funds to choose from, I can see why funds of funds would appeal.”
Bestinvest senior investment adviser Adrian Lowcock says the multi-asset approach of some funds has “reinvigorated” the sector. Bestinvest runs its own multi-asset products for clients with a minimum of £1,000. The portfolios, which are managed by Graham Frost, the firm’s chief investment officer, offer exposure to a range of fund types, including investment trusts, exchange traded funds and structured products.
“If you take investment trusts as an example, one of the key problems for investors is timing,” says Lowcock. “Investment trusts can be well managed but if you buy in at the wrong time they are expensive, so a fund of funds is a good way for an investment manager to add value by working day in, day out to pick the opportunity and getting the timing right. That is much tougher for a retail investor to do.”
Multi-manager products often come under fire because of their double layer of fund charges. Owen and Lowcock say while investors should be aware of costs, products offering strategic asset allocation can justify their higher fees. “You have got to balance off the charge with what you get for that charge,” says Owen. “If a fund can demonstrate it is adding value, I think you should be prepared to pay for it.”
Beckett does not use traditional funds of funds in its discretionary service and only a small selection of Jupiter and Legal & General products appear on its wider buy list. However, Owen does use multi-manager products such as SVM global opportunities for exposure to alternative assets. The £35m portfolio, which appears in her AFI selection, had allocations to private equity, hedge funds, property and resources in July.