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Rob Burdett: Faith in Fofs

Investor faith has stayed with multi-managers throughout the credit crunch as sales have stayed steady.

Assets under management for unfettered fund of funds are up 2.4 per cent year on year compared with a fall of 8.5 per cent for the fund industry as a whole.

Total net sales for unfettered Fofs were up 91 per cent last quarter compared with the same quarter in 2008. Total net sales for unfettered Fofs of £1bn in Q2 2009 were at their highest-ever quarterly total, and compared well with total sales for the whole of 2008 of £975m. Has this faith been well placed by investors?

Like all sectors of the market, there have been successes and disappointments o a relative basis and rather too few absolute returns. However, if we look at the two biggest sectors for unfettered fund of funds – balanced and cautious managed – we are pleased to report that the level of consistent outperformance from unfettered Fofs has been better than that of the rest of the sector populations, even after allowing for the extra fees that an unfettered fund of funds incurs.

Multi-managers have also been more consistent through the crisis. We analysed the two sectors over 12-month periods to see how many funds outperformed for three years in a row – to do so through the worst crisis in our generation is a good measure in any circumstances.

Both the balanced managed and cautious managed sectors are split roughly 50-50 between unfettered Fofs and other types of managed funds.

In the case of the balanced managed sector, 17.3 per cent of unfettered Fofs outperformed in each of the last three 12 month periods. This compares favourably with 14.7 per cent for the rest of the balanced managed funds. For the cautious managed sector the difference was milder at 14 per cent for the Fofs versus 13.5 per cent for the others – do not forget these figures are after fees.

Advisers have continued to increase their support for the multi-manager industry and it their faith has been rewarded with more consistent performance in hugely testing times. It seems that 40 years after the first fund of funds was launched, they are very much an established part of the investment landscape.

Robert Burdett is fund manager at Thames River Capital

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