View more on these topics

Carry on NURS

dvisers have been warming to the idea of multi-manager. This has been partly driven by regulation but the number of offerings, the variety and skill sets of multi-managers have come along way over the last few years.

ANew powers have been given to multi- managers following the Coll directive, including the introduction of the Non-Ucits Retail Scheme, which allows retail investors access to unregulated investment funds. This means multi-managers can introduce commercial property, hedge funds, private equity to the traditional mix of equities, bonds and cash.

Why bother? Well, diversification reduces volatility efficiently as the volatility of a diversified portfolio is less than the average of the volatilities of its component parts. In statistical terms, this effect is due to lack of covariance, the smaller the covariance between the two securities, the smaller the standard deviation of a portfolio that combines them.

Having managed money in the last bear market and defended the portfolios with as much cash, bonds and gold as trustees would permit, we would have given anything to have had the flexibility to invest in bricks and mortar or hedge funds with a short-term bias.

It does not feel like we are about to enter an equity bear market but complacency is a dangerous thing and when you see volatility indices such as the VIX close to all-time lows and then see investment guru Warren Buffet sat with $40bn in cash, you cannot help but feel that you need something other than just equities in your portfolio.

Structured products may come to the aid of the multi-manager, as it is now possible via the notes issued by the likes of Barclays Capital to buy products that deliver the exact profile of return you require. For example, we are a little nervous about the US equity market. Now we can effectively go short of the markets and it is possible to buy a structure that is 100 per cent capital-protected (unless the market rises more than 30 per cent) and will go up by 2 per cent for every 1 per cent the S&P 500 falls.

Just as it may have seemed the work of the IFA was about to lessen by outsourcing fund selection to multi-managers, it again has to increase, as the research needed to find the right multi manager has picked up in the wake of the ever increasing variety of product offered. Our hunch is that multi-asset class investment under the NURS structure is the future for multi-managers as efficient diversification within a portfolio can enhance returns and reduce risk.

Tom McGrath is fund of funds manager at Miton Optimal

Recommended

Isas are here to stay

Balls says distinction between maxi and mini will be removed and hints that the investment limit may be raised

This week in Pensions

Lots of people moan, and often justifiably so, that journalists are only interested in bad news. It was the late great trailblazer of tabloid journalism William Randolph Hearst who once said news is something somebody doesn’t want printed, all else is advertising.

CETA launches MPPI product

General insurance network CETA has teamed up with Cardif Pinnacle to launch a mortgage payment protection insurance product which will be sold through CETA’s 16,000 members. The product has been developed to try and address the concerns raised by the Office of Fair Trading’s report into the PPI sector.Premiums start from £2.20 per £100 of […]

Time for a new approach to asset allocation

Trevor Greetham, RLAM’s head of multi asset, introduces the recentlylaunched RL GMAPs. Asset allocation has become an increasingly difficult challenge for investors and advisers in the years since the financial crisis. Sometimes violent price swings in stock and commodity markets coupled with the collapse in the rate of interest on bonds have made it harder […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment