It is of no surprise that advisers have warmed to multi-manager products. Why depend on the performance of one firm or manager when you can get the expertise of up to a dozen or so investment houses within one wrapper?
It is also a tricky business keeping on top of every event which might affect your clients’ investments. Dozens of fund managers jump ship every year but multi-managers research the market every day, talk to analysts and fund managers. They often get the heads up if someone quits and are well placed whether to stick with the fund or not. Besides, being a financial adviser is more than building investment portfolios.
The huge increase in the number of products on the market undoubtedly means that some disappoint and many multi-manager funds have certainly failed to shine. Those from Axa Framlington, HSBC, Insight, Police Mutual Investment and Solus have consistently failed to return above average performance.
But I was surprised to learn that Britain’s most popular multi-manager Skandia – with £5bn under management – has delivered such poor performance since its was launched in 2003. Most of its funds have languished in the fourth and third quartiles in the past three years. For example, its £272m cautious fund is fourth over one year and third over three. Its £239m balanced fund has not moved out of the bottom quartile over both periods. Its £153m corporate bond fund is a third-quartile performer, while its £126m Equity Income fund is fourth quartile over one, three and four years.
Skandia blames the “one-way” bull run, which has seen mid and small cap lead the way and three years being a short period. It insists that its funds have made strong absolute returns and argues that that “it is unfair to say we have been poor performers”. “We blend different styles and managers. We have large cap, mid cap, growth and value managers in ours,” the company tells me.
Surely blending all the different styles means you will underperform? With staggering honesty, Skandia argues that it does not make market calls – because it is not a “tactical asset allocator”. So the asset allocation of it UKs funds, for example, will be similar to that of the All-Share.
I would have thought asset allocation is the key to outperformance.The sheer number of funds in multi-manager means asset allocation calls will often decipher which funds do well and which fail. There are a limited number of decent funds from which the multi-managers can pick and so there is going to be replication. The difference will be which one decides to hold 10 per cent of Elena Shaftan and which one decides to hold 2 per cent – not whether one holds Shaftan or not.
John Chatfeild-Roberts, who runs Jupiter Merlin portfolios, is never afraid to make a big call – even if it proves wrong (as it did with Japan last year) but so far his record suggests that pulling no punches wins through – he is, after all, top quartile year after year. It is of no surprise that he is not shy in criticising Skandia’s record. “They are simply sitting on the fence,” says Chatfeild-Roberts. “We always take a view and build a portfolio around it. It is not higher risk, it is just common sense. If you buy a fund because you think it will go up why blend it with a fund that will go down. It does not make sense.”
When I asked one chief investment officer – who wished to remain anonymous for fear of upsetting Skandia – on his thoughts on the asset allocation issue he laughed. “We are paid to make decisions, otherwise what is the point? If you look at the best performers over time they are the ones that take a view – these would include the Jupiter boys and the likes of Midas. If you blend different styles and fix your asset allocation by mimicking your peers you will only get middle of the road performance with drag.”
It is hard not to see the CIO’s point.Not that long ago, I was applauding Skandia for its radical best ideas fund – for being innovative and for delivering decent first-year numbers. The gloss has been taken off somewhat by the performance of its other funds.
Paul Farrow is money editor at the Sunday Telegraph