View more on these topics

Keep it realistic

Multi-manager has proved a hit with investors who are attracted by the concept of an investment professional trawling a virtually limitless universe to find the perfect combination of funds for their portfolio. However, unrealistic expectations and lack of understanding of the methodology could ultimately lead to a flood of redemptions.

It is a popular misconception that the additional tier of management charge levied on multi-manager products is paid so that the manager can find the best-performing funds and combine them in one portfolio. Not only would this constitute an exercise in hindsight but it would fail to deliver the consistent returns that the multi-manager approach is designed to offer. If all the components outperform at the same time, there is a danger they could also simultaneously underperform at some point in the future.

In this scenario, we would be talking about a cluster of funds with similar characteristics which anybody could put together, rather than a complementary and risk-diversified portfolio of uncorrelated investment disciplines. To put together the latter, extensive qualitative research and quantitative analysis is required.

Qualitative research is essential in determining how a fund manager or investment discipline is likely to perform in a variety of market conditions. Quantitative analysis is backward looking but can form an important part of the fund selection process as it allows the factors that have contributed to, or detracted from, relative performance to be analysed in detail and can therefore help to verify the findings of the qualitative research.

The knowledge obtained from the research and analysis can be used to build a portfolio of investment disciplines that are uncorrelated. An effective multi-manager product should be characterised by above-average relative performance, a low tracking error and high information ratio. Strong short-term performance would therefore be indicative of a weakness in portfolio construction rather than a successful investment process.

Multi-manager provides a valuable dimension to investors’ options. The argument that index trackers merely provide “guaranteed mediocrity” remains valid. Innovations in the way products are constructed to overcome these issues means some more traditional methods of measuring managers’ effectiveness must be reconsidered, otherwise investors will become unjustifiably disillusioned with their portfolios and potentially seek alternative solutions that could be less suitable and less profitable.

James Hughes is head of multi-manager (UK and offshore) at HSBC Investments.


Eq Life policyholders given fresh hope from Europe

Hopes grew last week that victims of the collapse of Equitable Life could finally receive compensation from the UK Government after a leading MEP involved in the critical European Parliament report suggested the European Commission may step in.

Pirates will be sunk if they try to take on IFAs

Ahoy there, all ye PIMS revellers, a bank beating a good IFA at his own game? Shiver me timbers. A black spot from a banker? I’ll show ye where to stow yer hook, matey. Having watched the “big” firms stumble about over the last 20 years I can only offer them one piece of advice, […]

The last chance saloon

What does the future hold for IFAs then? If the imminent retail distribution review does not pose a definite threat to independent financial advisers as such, it may well pose a threat to the term “IFA” itself, some might say.

Generation Rent

By Denise Wond, marketing manager We’ve heard a great deal about Generation Rent in recent years but what does it actually mean for consumers and advisers and has the face of the typical renter changed? The picture is certainly more diverse than it used to be. Homeownership is at its lowest point in 30 years, […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm