John Husselbee, a portfolio manager at Henderson, has bemoaned the dismal performance of his multi-manager funds which have resulted in them dropping into the third and fourth quartiles over the past three and five years.
“We were 100 per cent in equities as was our remit but we are being compared in sectors where funds can invest in bonds and fixed interest,” says Husselbee. “We are one of the older players in the multi manager market and we haven’t started with a clean slate unlike the new entrants.”
He has a point, of course, and not surprisingly he has changed his strategy, although it has come a little late to appease his investors. From now on he will be watching his peers closely and if they are heavily weighted in bonds, he will make sure he is not too far away.
Huss, as he is fondly known in the industry, is no doubt kicking himself that his poor performance has coincided with the multi-manager explosion that is taking the UK fund market by storm.
He was there at the beginning in the mid-1990s along with the likes of John Chatfeild Roberts (then of Lazard) and Gary Potter and Robert Burdett (then of Rothschild). These rivals, now firmly ensconced at Jupiter and Credit Suisse and buoyed by decent performances, are raking in the money.
IFAs have a huge appetite for multi-manager funds and who can blame them? Investment has been a cursed business in recent years. What’s more they have enough on their plate with M-day, D-day, compliance checks and the day-to-day care of clients without having to find time to analyse stock markets, fund performance, make asset allocation calls and monitor the never-ending stream of fund managers jumping ship.
But whereas a decade ago there was only a handful of funds to choose from, there are now dozens and the number is growing by the day. Fund groups reeling from dismal Isa sales are realising that the multi-manager arena could help fill the void. Which groups will come out as winners will ultimately come down to performance, although a few have a head start.
There is a camp that argues that second quartile performance is acceptable for multi-manager funds because they aim to be low-volatile, consistent performers. This is a poor excuse. Investors are paying extra for being in multi-manager funds. They are paying for, among other things, specialist knowledge and this deserves nothing less than consistent first quartile performance. Otherwise what is the point?
Charges have always been a thorny subject in the multi-manager sector and investors should expect to pay more than they would for a bog-standard unit trust. The issue is whether paying over the odds is worth it and for some funds it clearly isn’t.
Insight, for instance, levies some of the highest TERs on the circuit. According to Fitzrovia the TER on its Wealthbuilder High Income fund is 2.76 per cent, 2.95 per cent on its UK Dynamic fund and more than 3 per cent on its Global Dynamic fund. Not one of the funds has achieved top-quartile performance over three years. Artemis multi-manager funds also charge close to 3 per cent and they have had less than an auspicious start since coming over from Singer & Friedlander with four out of five funds generating below-average performance.
Multi-manager products may ease the workload for IFAs, but careful analysis of charges, processes and performance is still crucial if they want to keep their clients happy. Just as with traditional funds, there will be plenty of duds around.
There will also be plenty of bitchiness between firms now that competition is hotting up. New Star and Jupiter have already resorted to handbags at five paces after it emerged that New Star refused to meet its rival, which was interested in buying some of its funds.
Several groups are also getting miffed with aggressive managers that take a large stake in a fund, only to sell out within a few weeks.
Some admit that they would be reluctant to let a multi-manager invest in a significant stake in one of their funds if they thought it was going to be temporary.
Does this affect performance I asked one marketing director? “No, it is not that so much, he replied, but it can really affect your sales figures.”
Paul Farrow is a personal finance reporter at the Sunday Telegraph