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OBSR is cutting through multi-manager noise

Old Broad Street Research has created a website that will help advisers categorise multi-manager funds in greater detail by comparing them to offerings that are deemed like for like.

The site, which launched last week, places rated multi-manager funds into five different categories, rating them on a qualitative basis.

Research director Richard Romer-Lee says the website and features will help advisers cut through the noise in the sector by allowing them to drive down to find the right fund for each particular environment it operates in.

The launch comes after almost a year of research by the firm on its 3,700 users, with the majority of respondents calling for a greater focus on multi-manager research.

This is something the firm could not do prior to the end of its joint venture with Forsyth Partners last summer as Forsyth was an offshore fund of funds provider, meaning a potential conflict of interests.

New additions include greater functionality, such as a charting tool, fund factsheets and the new categorisation offering.

Romer-Lee says: “In our view the Investment Management Association stats are drawn too broadly and it will say they are there to broadly point people in the right direction. This presents an opportunity and what we are trying to do within that is help people within that show how lots of different funds operate in different markets.

“For example, if an adviser wants a core fund run in an institutional fashion with attention paid to the benchmark we will help them identify that. Conversely if he wants a special situations fund with an absolute mindset within the constraints of a long-only fund, then we will help them find that as well and the critical thing to realise is that these funds could be in the same sector but they can behave materially differently.”

Multi-manager continues to grow as an investment theme and now has over £33bn in assets under management, reflecting a 21 per cent increase from 12 months ago. There are now about 260 funds in the market with new players such as Thames River, Resolution Maia and LV= all having recently joining the scene.

Romer-Lee says: “The sales tell there own story as IFAs are looking at multi-manager funds as an outsource of fund selection and asset allocation.”

He believes the growth of propositions is making it more difficult for IFAs to select the right fund for the right job.

The five categories the group has introduced are two fixed asset allocation categories, relative and absolute return bias, two active asset allocation categories, relative and absolute return bias, and a target return objective category.

Romer-Lee says: “Jupiter’s John Chatfeild-Roberts runs his fund on a medium to long-term basis with one of the primary drivers of return being asset allocation. That is a completely different approach from Bambos Hambi at Gartmore, for example, where his managed funds offer an alternative from an in-house managed fund.

“What Bambos is effectively saying is that we will pick the best players in each sector and he will steer clear of asset allocation aside from a few strategic and tactical positions at the margin but the focus mix will be on picking the best managers.”

Romer-Lee says it is unfair to compare these two for example and hopes advisers will use these sectors underneath the IMA’s own guidelines.

He says: “When things go well, all funds tend to go up but when markets struggle they tend to perform fundamentally differently and investors do not like shocks.”

OBSR evaluates the offer-ings on a fund specific basis as some firms, such as Cazenove and New Star, may have offerings that operate across the categories.

Of the five categories, Romer-Lee says two have been recently added to the list following recent launches in the market with the target return objectives category based on the launch of new diversity funds that have more esoteric investments with that bias and the fixed asset allocation absolute return bias which was launched off the back of the Skandia best ideas funds.

He says: “I expect over time we will launch more categ-ories but for now we are saying that there are at least five different types of multi-manager funds which behave in different ways.

“The fund management groups have all supported this approach to clarify their funds in how they behave as it will clear their messages to the IFA market. We believe that this will help advisers in adopting the growing multi-man-ager trend.”

HOW OBSR SAYS THE FUNDS BREAK DOWN

Fixed asset allocation, relative return bias

Asset allocation at the asset class and/or the geographical level v the benchmark is not actively managed and the fund aims to generate outperformance from manager selection. The performance objective of the fund is to deliver attractive returns on a relative basis.

This category includes managers who do not believe that it is possible to consistently add value by making tactical asset allocation calls at the asset level/or geographical level and they fix the asset allocation of the fund to a benchmark that they believe is appropriate for long-term investment. Through the underlying fund and/or manager selection, the aim is to deliver attractive returns on a relative basis.

  • Skandia (fund specific)

  • Scottish Widows/Frank Russell

    Fixed asset allocation, absolute return bias

    Asset allocation at the asset class and/or geographical level v the benchmark is not actively managed and the fund aims to generate outperformance from manager selection. The performance objective of the fund is to deliver attractive returns on an absolute return basis.

    This category includes managers who do not believe it is possible to consistently add value by making tactical asset allocation calls at the asset class level and/or geographical level and fix the asset allocation of the fund to a benchmark they believe is appropriate for long-term investment. Through the underlying fund and/or manager selection, the aim is to deliver attractive returns over the long term on an absolute basis.

  • Skandia (fund specific)

    Active asset allocation, relative return bias

    Asset allocation at the asset class and/or geographical level v the benchmark is actively managed and the fund aims to generate attractive returns from asset allocation at the asset class and/or geographical level as well as from manager selection. The performance objective of the fund is to deliver attractive returns on a relative basis.

    This category includes managers who believe they are able to add value through asset allocation at the asset class level and/or geographical level as well as through manager selection. However, given their concentration on returns relative to the benchmark, asset allocation decisions away from the benchmark are likely to be reasonably modest.

  • Cazenove (fund specific)

  • Credit Suisse

  • F&C/Friends Provident

  • Fidelity

  • Gartmore MultiManager

  • Henderson

  • HSBC

  • IMS/Norwich Union

  • Insight Investment/Clerical Medical (fund specific)

  • New Star (fund specific)

  • T.Bailey

  • Thames River

    Active asset allocation, absolute return bias

    Asset allocation at the asset class and/or geographical level is actively managed versus the benchmark. The manager may take significant positions away from the benchmark in an attempt to add value and tends to invest for the long-term with an absolute return objective.

    Managers in this category are trying to add significant value by adopting more of an absolute return objective and use asset allocation at the asset class level and/or geographical level more aggressively to this end. Given that such managers may be operating in higher risk asset classes, it is important to recognise that negative returns may also be experienced over shorter-term time periods.

  • Cazenove (fund specific)

  • Jupiter

  • MitonOptimal Asset Management

  • New Star (fund specific)

    Target return objective

    The fund has a stated target return objective and the manager typically aims to achieve this through investment in a multi-asset portfolio. The construction of the fund and therefore the risk and return profile may differ markedly from others in the same sector.

    Funds in this category have a stated target return objective, usually to be met over the long term, and the managers typically use a multi-asset approach in seeking to meet their risk and return objectives. Asset allocation strategies may be long-term or short-term or a mixture of the two.

    This categorisation incorporates funds in sectors where asset level (bonds/equities/alternative investments/cash) or geographical asset allocation decisions are relevant to the way in which they are managed. Single bond and equity sectors are therefore not included in this categorisation (although of course active asset allocation decisions may also be taken in these funds at the market cap level/credit exposure etc).

  • Cazenove (fund specific)

  • Insight Investment/Clerical Medical (fund specific)
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