The Spectrum funds will combine a fund of funds approach with manager of managers in that it will invest in existing retail and institutional funds as well as segregated mandates. Typically the funds will invest across 11 asset classes and at least 20 managers. The funds are available through all product wrappers on Skandia’s three platforms – Skandia life and pensions, Skandia MultiFunds and Selestia Investment Solutions.
The spectrum funds are intended as a ready-made solution for advisers who use Skandia’s risk profiling and asset allocation tools. These tools allow advisers to determine the risk profile of a client on a scale of one to ten and match an appropriate asset allocation to that risk profile based on independent data from Watson Wyatt.
Skandia’s risk profiler uses a detailed questionnaire to define the clients objectives and risk profile. Risk is categorised on a scale of one to 10 and these categories are the spectrum funds match risk profiles three to eight, which reflects moderately defensive through to aggressive portfolios. According to Skandia’s historic analysis of risk profiles, risk profiles three to eight cover the needs of more than 95 per cent of investors.
The underlying funds and managers are then selected on the basis of their characteristics, not by focusing entirely on past performance. Managers and funds are then carefully blended and monitored.
The Spectrum funds will be automatically rebalanced to ensure they remain in line with the stated asset allocation. The advantage this has over advisers rebalancing a portfolio they have put together is that the adviser does not need to write to every client. Another benefit is that it will not create a capital gains tax liability for investors the way rebalancing a portfolio of individual unit trusts and Oeics could.
This fund range enables advisers to outsource both asset allocation and fund/manager selection, enabling advisers to focus on the broader aspects of their clients’ financial planning. Skandia also says that combining a fund of funds approach with manager of managers has enabled it to discover hidden gems such as Origin in the UK and Acadian – part of the Old Mutual Group – in the US.
However, Tactica’s recently launched multi-manager range may provide competition. It combines a fund of funds approach with direct investment in various asset classes. This gives the manager more control than investing entirely in funds of funds without incurring the costs of segregated mandates.