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Multi-Manager View

We have a growing range of multi manager offerings which, once you have scraped off the label, all seem to look exactly the same. Apart from their charges and funds, they all appear to have a very similar style.

Although some are happy to use their own or a limited range of funds, others are more independent. However, the common thread I find with most of them is their slavish fixation with two primary asset classes – equities and fixed interest, with a dash of cash for elegance.

Surely, for multi-manager we should be reading multiasset managers and effectively building multiple asset portfolios or Maps? In the UK, we are blessed with a range of suitable asset classes which can be deployed to support the various client risk profiles of the multi-managers.

Surely any effort we can make to improve the predictability of returns has to be a benefit. That is, after all, the primary reason for applying asset allocation policies in the first place.

Of the other asset classes, the most obvious would app-ear to be commercial property, an area which sadly appears to have become a fashion fad but nonetheless can provide greater balance for portfolios, especially when viewed internationally and not from just our parochial UK perspective.

Another should be that of commodities, where specialist funds mean that we can include the opportunities offered by the increased emphasis that this asset class has been receiving since the reawakening of the Chinese dragon.

The mention of private equity normally results in some sucking of teeth but we would be failing in our task if we ignored these potential investments. Increasingly, we have seen many companies not wanting to come to market to face the peering eyes of analysts and market viewers, thus meaning that ordinary investors could be missing out on opportunities. The best value for private companies is often before they come to the public market and not after – leaving something for the next man? Well, not much.

Another area often ignored is that of index-linked bonds. These are frequently lumped, misleadingly, with fixed-interest investments but they behave in a very different manner and serve a different purpose, providing a key tool for the management of inflationary issues. Again, taken internationally, these investments operate in different ways from UK structures and can provide more effective security.

Obviously, cash is included but often only as the make-weight rather than as an asset class in its own right. Yet cash rates over the past few months have on occasion provided better returns than certain fixed-interest investments and in a period of rising rates, can’t afford to be disregarded.

So, based on the availability of other asset classes to deploy in multi-manager programmes, why do we find that so many are restricted to just two? The answer may lie in where we have come from – an investment market dominated by “traditional” investment managers from an equity background with some added fixed interest. If we are going to try to improve the calibre of investment management for clients, then we are going to have to be more imaginative in our approach.

Justin Urquhart Stewart is a director of Seven Investment Management

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