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Adviser Fund Index

The rules for the construction of the Adviser Fund Indices have been revised, allowing the panellists greater access to multi-manager funds.

With the upcoming rebalancing of the AFI series fast approaching on May 1, Financial Express has updated the portfolio construction criteria and has put a cap on the amount that panellists can allocate to individual funds and multi-manager portfolios. The maximum weighting that a panellist can allocate to an individual fund within each of their three portfolio recommendations is now 20 per cent. Multi-manager funds in aggregate cannot exceed 30 per cent of a panellist’s recommendations for a particular index. The new rules apply from May 1.

Previously, while not explicitly stated, no ceiling was imposed on individual fund weightings. Furthermore, the use of multi-manager funds was not generally allowed unless the panellists could not closely match the portfolios they recommend to their clients within their AFI recommendations without using them.

According to Paul Wynne, head of marketing and communication at Financial Express, the revised rules were implemented in order to enhance the robustness of the methodology for the AFIs.

David Wynn, investment director at Bentley Jennison Financial Management, is among a number of panellists who welcome the rule change. Wynn says the relaxation on multi-manager funds means he can access alternative investment strategies, including hedge funds, via a multi-manager vehicle.

Wynn says Bentley Jennison clients’ exposure to hedge funds and property has been increased in 2007, given the group’s bearish view on equity markets. “Our exposure to hedge funds is through multi-manager offerings and we will make use of the multi-manager allowance in the AFIs. These funds are a good way to get exposure to alternatives as multi-managers are much better placed to analyse hedge funds than we are,” he says.

Wynn plans to include several multi-manager portfolios within his recommendations for the Balanced and Cautious AFIs. He rates Cazenove’s multi-manager diversity and equity funds highly. The diversity fund includes exposure to hedge funds while equity invests in funds with an absolute return philosophy.

He says the Aggressive recommendations will become more adventurous, with more exposure to resources.

Although the revised rules have imposed new restrictions on the AFI panellists’ selections, the underlying structure of the indices remains unchanged.

There is still a maximum of 10 funds to be chosen by each panellist for the three indices while the portfolio recommendations continue to be defined with reference to a fictional investor saving for a pension at age 65. The Aggressive profile relates to someone in their late 20s, the Balanced profile assumes investors are in their early 40s while the Cautious investor is in their late 50s.


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