While we can expect multi-manager offerings to enjoy momentum for some time to come, it is clear that not every multi-manager is made the same. Nowhere is this more evident than in the way different managers approach the issue of portfolio transparency. It seems a small hardcore of providers are intent on shrouding their portfolio allocations in mystery, arguing that to reveal such sensitive information could leave it vulnerable to duplication by investors and their advisers or direct competitors.
As neither investors nor their advisers can afford to replicate the trading position of a fund of funds, trying to maintain an air of mystique seems somewhat oblique at best. But to suggest that investors need not concern themselves with the internal workings of their own portfolios echoes disturbingly of every great debacle yet visited on UK investors.
While investment funds must be priced at fair value, there is little to be gained from relying on individual manager whim when it comes to constructing a portfolio. While a certain level of manager flair is exactly what is required with an equity fund, any multi-manager fund worth the price of admission must be built on the three Ps – process, process and process.
Those shopping for funds of funds should demand the same qualities that multi-managers insist upon. Chief among these is a process that is clearly durable, robust, repeatable, consistent and – although it may lack sex appeal – predictable.
Despite the much-deserved plaudits heaped on Fidelity's special situations fund, its lack of transparency on its holdings means it will never appear in one of our portfolios. A significant part of this fund's secret recipe is that, while adhering to the UK all companies sector definition of maintaining an 80 per cent weighting in UK equities, it has over 200 holdings including significant assets right across Europe and even China. There is nothing intrinsically wrong with running a fund so close to the boundary but unless investors are allowed close enough to take a view on issues such as portfolio concentration, we can only decline such funds regardless of reputation.
The rigour of the Traffic Light Analysis that drives our own allocation process can be seen from the fact that we still own 68 per cent of the same assets as a year ago. Similarly, with four funds in our range each maintaining between 15 and 25 holdings, there is a fair degree of repetition of funds. This is at it should be if you are a manager committed to your own research. It is no surprise that the higher conviction bets across the range correlate with individual managers who, if not absolutely rabid stylists, are dogmatic to say the least. The majestic Tim Russell at Cazenove is a prime example, as is the partnership of Tony Willis and Alan Custis at Lazards.
The proof of the pudding with any multi-manager process is to see how longer-term holdings have performed in their own sectors. Funds that our process led us to some years ago include New Star European growth (second in sector), Schroder US small companies (first), AEG extra income (first), Jupiter emerging Europe (first) and Baillie Gifford high-yield bond (first). Not surprisingly, we expect to hold on to these funds for some time to come. We are firm believers that if it ain't broke, don't fix it. Of course, the reverse is also true, which might account for why some multi-managers still insist on keeping their portfolios such a closely guarded secret.
Richard Philbin is director of fund of funds at Isis Asset Management