Omnis has launched with three risk-graded multi-asset funds. The cautious fund aims for annual returns of around 2.5 per cent above cash, the balanced funds aims for 3.5 per cent above cash while the advanced fund aism for 4.5 per cent above cash after all fund charge.
The funds provide access to a range of asset classes, but unlike similar funds already on the market, the total expense ratio will be capped at 2.25 per cent. Omnis believes this will provide better value for investors, who may be put off the idea of multi-manager funds due to concerns about double charging and costs eating into the returns.
Omnis is able to cap the costs because it uses a concept used in institutional investing known as the core/satellite approach. This differs from the core and satellite approach used by IFAs in portfolio construction, where they may use general UK funds as a core investment and surround them with smaller weightings to higher risk specialist funds.
The Omnis core and satellite approach is split between actively managed funds and passive tracker funds. It starts with the idea that a big part of the returns are generated by the market, so the intention is to reduce what is spent on market returns by investing in a core of exchange traded funds and institutional style tracker funds. These can deliver markets returns at a lower cost than active managers, so that Omnis is able to invest the remainder in good quality active managers who outperform the market.
Omnis says these managers cost more because they deliver and this means they do not have to court multi-managers through discounted fees.
When constructing the portfolios, Omnis will draw on insight and data from global investment consultants Mercer. Mercer looks at where the returns are coming from in the underlying funds so that Omnis can see the level of the returns it can obtain above cash for any given level of risk, saving it time and money.
Risk-graded multi-asset multi-manager funds are nothing new but these funds stand out from the rest of the pack due the cost capping made possible through the core and satellite strategy.
Some advisers may be happy that the bulk of the portfolios will be invested in passive funds to keep costs down, but others may still prefer funds comprising mainly actively managed funds, with ETFs and trackers used tactically to boost returns.