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Pick the winners

Negative headlines have been stealing the limelight on both sides of the Atlantic which has led to extreme market volatility and short-term noise is becoming increasingly difficult to ignore. Ironically, we should be widening out our time horizons and thinking more and more long term.

Conventional wisdom used to hold that a long-term investment should be held for at least five years and preferably 10. This was based on the premise that over almost any 10-year period, equities outperformed cash and bonds. Yet the “lost decade” for equities of the 2000s has put this notion into question and investors have had to reassess the meaning of long term.

Research that analyses multi-manager performance as a group versus their single-fund counterparts has typically shown that over the longer term, multi-managers have outperformed conventional funds after all fees and charges have been taken into account. This last point is quite important as often when the merits of multi-managers are debated, higher costs are cited as being prohibitively high. but when performance comparisons are made, they are almost always done so net of any fees taken and so a direct comparison can be very easily made.

Perhaps the most interesting thing about the research is that it looks at performance over a 10-year period. Multi-managers have always suited this approach.

The most recent round of research shows reduction in multi-managers’ performance advantage over conventional funds. In 2008 and 2009, multi-managers outperformed over 10 years in all but one of the five sectors covered, yet the latest report shows they only outperform in two.

This change was initially concerning to us but it is likely to be a symptom of such a fastgrowing industry. According to recent IMA statistics, multi-managers at the end of June had £63.5bn of assets under management, up by 37 per cent from a year ago. A natural function of this is the attraction of many more players and all new entrants will have the knowledge, experience and resources to deliver consistent performance.

Latest evidence supports our suspicions. Over 10 years, multi-managers achieve significantly more first and second-quartile performers than conventional funds across the main sectors, so there is still an elite group of producing this performance.

Research and due diligence into investment firms is always necessary and by identifying those with solid long-term track records, stable teams and quality in experience, investors can sift through the pile.

Aidan Kearney is co-head of multi-manager funds at Aberdeen Asset Management


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