Since then, funds of funds can be included regardless of their function in the model, although they cannot make up more than 30 per cent of each portfolio.
Not all panellists have taken advantage of this rule change, however, and eight out of 10 panellists that responded to a recent survey say they continue to avoid funds of funds.
Some regard funds of funds as letting someone else do their job for them while others say they are a useful tool in getting exposure to alternative asset classes and more specialist areas.
Kypros Charalambous, associate director at Barclays Wealth and AFI panellist, does not normally hold funds of funds in the AFI. However he does hold the £55.54m SVM global opportunities fund, managed by Donald Robertson and Colin McLean.
The SVM global opportunities fund consists of a blend of single-country funds, hedge funds, private equity funds and other specialist funds. Charalambous says it gives him access to some of the “spicier areas”.
He says: “I use the SVM global opportunities fund in the index across all three portfolios. It gives me something different. It has alt-ernative exposure, access to hedge funds, derivatives and structured products. It tends to complement how I put portfolios together.”
Similarly, David Wynne, associate director of Bentley Jennison Financial Management, looks to funds of funds for access to alternative assets. He says: “We are fans of multi-manager, particularly because it allows us access to alternative assets. We very much come from the diversified approach.
“We not have the resources to analyse the whole of the hedge fund market, for instance. We lean on their fund of fund managers ‘resources and we analyse them to see why they choose the funds they choose. It is a far easier way of us getting access to alternative assets.”
Wynne has taken the maximum stance of 30 per cent exposure to funds of funds in both his balanced and cautious AFI portfolios.
He explains: “What we are trying to do is protect on the downside. That protection lessens as we go up the risk scale.”
Unlike Wynne and Charalambous, Hilary Coghill, investment director at City Asset Management, does not use funds of funds in the AFI. She says City Asset Management selects the funds itself.
“We are making selections, so we do not need to use funds of funds,” Coghill explains. “Our clients might say, ‘Why are we paying you when we can go and buy a fund of funds direct?”