View more on these topics

Risk and return

Multi-manager continues to grow in the number of funds and assets within them. Cerulli’s latest research points to 20 per cent annual growth between now and 2010.

Over 187 multi-manager funds are available. It takes time to research the differences in providers and funds to establish which ones are suitable for their clients.

It is important to consider the risk rewards by investigating whether performance is due to the fund following the market positive alpha, fund selection or simply luck. Each multi-manager tends to consider risk in a different way.

First, you may want to categorise your multi-manager. At Fidelity, we believe all multi-managers fall into three categories:

Risk mitigators – typically, the bigger, more institutional houses which place great importance on benchmarking. The aim is to reduce risk by very broad diversification, for example, you will see a long list of investment funds. The disadvantage is that by overdiversifying on volatility, you also diversify away any alpha a good manager may be providing.

Alpha generators – this group, which includes Fidelity’s multi-manager funds, concentrates on generating returns from active fund manager skills and overlying portfolio construction techniques. This group pays attention to asset allocation but avoids taking big allocation bets.

Aggressive asset allocators – this sector will try to time markets and make aggressive allocation calls to generate returns. Fund selection is still important but is not the main driver – asset-allocation bets are, which means performance can be stellar but also can dip considerably.

If you do not want to categorise, you can also look at risk-return charts but if a manager is outperforming the market by a mile, is it because he or she is lucky or is making skilful calls?

How can you do this research quickly? The simplest way is by using databases such as Lipper or S&P and comparing the performance to the level of risk taken against all the funds in the sector. Because of diversification of funds, in most cases, you should really expect your multi-manager to provide above-average returns at belowaverage risk. This is easy to spot by plotting the annual tracking error alongside the percentage returns. This is a quick way of seeing whether the units of risk you are taking are worth the results achieved.

It is also worth looking out for the research carried out by firms such as OBSR and RSM.

Phil Morse is business development director of Fidelity International’s multi-manager business


Legal & General announces 11.2 per cent with-profits growth

Legal & General has generated an 11.2 per cent return for customers on its with-profits fund and announced £596m in with-profits bonuses for 2006.Over five years, the fund has returned 55 per cent which exceeds FTSE All-Share and FTSE 100 indices.The total bonus declaration of £596m was up by 43 per cent on 2005.L&G with-profits […]

Advice that makes my heart sink

As a practising accountant and IFA, there are two expressions which make my heart sink: “I am going self-employed” (meaning that it is a disguised employment) and: “I am going to put it in the wife’s name” (meaning that it is a sham gift). I am sorry to see that Sarah Anderson, solicitor in tax […]

Standard Life sets up Fundzone platform

Standard Life is to take on FundsNetwork and Cofunds with the launch of its new fund supermarket badged FundZone.FundZone, which launched this week, will effectively replace Standard’s Sigma platform and sit alongside its wrap proposition.Sigma was launched in 2004 and offers around 100 funds from 16 managers. It will remain open to business but new […]

Friends Prov ditches standard exclusions on IP

Friends Provident has removed the HIV/Aids and war exclusions on its individual and executive income protection products.The life office says it is the first UK life assurance firm to ditch all standard exclusions on income protection benefits throughout the range.Friends Provident has also extended the period of linked incapacity during which any deferred period can […]

How QE is distorting the gilt market

By Mike Riddell The moves in gilts in August were truly exceptional. Volatility in the gilt market (based off 10-year gilt futures) has soared to close to the highest levels seen this millennium, on a par with the eurozone debt crisis of 2011/12 and behind only the global financial crisis of 2008/09. The first distortion […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm