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Multi-Manager view

The question of how best to run multi-manager portfolios has become a topic of great debate. Led by a particular group of multi-managers, it suggests that providing top-quartile returns is a risky strategy.

That such an argument exists is rather bemusing to us. Why would a client pay the additional management fee for us to manage their fund exposure if they are not going to get any additional benefit from it?As increasing numbers of fund groups jockey for position and in this expanding sector, the under-achievers feel they have to explain away their poor performance somehow.

We make no excuse for our out-performance. Jupiter has gained a reputation as a high-performance investment group that believes in creating alpha – the fund of funds team is no different to the rest of the fund management team.

We do not believe how we achieve our returns is particularly risky. The concept of risk changes from person to person but anyone who invests in equities should recognise that, while they have the opportunity to benefit from stronger growth, there is a risk their assets could fall in value.

To reduce this risk you need to diversify which is why investing in funds which hold a spread of equities has proved so popular. Multi-manager products have evolved as investors have realised there are benefits to holding an actively-managed portfolio of funds. Fund of fund managers can, for example, give a better assessment as to the impact of any management changes and whether a short period of underperformance is a time to sell or an opportunity to buy.

One argument is that holding a broad portfolio of funds is less risky than running a shorter list. This is a spurious argument. For example, the more funds you hold, the greater the chance of cross-holdings in the underlying portfolio. Also, surely the number of funds it makes sense to hold depends on the market views and preferences of the individual manager? It is as irrelevant a debate as whether holding a concentrated portfolio of stocks is better than holding a broad portfolio. Anthony Bolton prefers running a longer portfolio, while Ed Burke prefers a more concentrated list. No one would argue that they aren’t both excellent managers.

And what about the ‘risk’ involved in asset allocating? Is it really part of a multi-manager’s role? Of course – it’s a key element of our quest for superior returns. If you are not going to look for the investment themes that will drive out-performance, aren’t you absolving yourself of duty to investors?It’s crucial to recognise when the investment themes change and adjust our portfolios. We never invest in a fund to sell it the next day but if the background shifts it makes sense to make the changes that will result in the best possible returns for investors. It’s the same thought process we go through when assessing whether a change in the fund management team will have an impact on performance.

In the end, there is no right or wrong way to manage money. Each of us has our own view. The most important thing for investment advisers is to understand the requirements of each individual client and build a portfolio to suit. Whether that means investing in an multi-manager fund with consistently average performance or one with consistently good performance is simply down to individual preference.

John Chatfeild-Roberts is head of Jupiter’s Fund of Funds team

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