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Spoilt for choice

The fact that we have such an array of multi-managers to choose from should be seen as an advantage for advisers but is it?

I find it it is necessary to peel back the marketing wrappers to reveal exactly what these innovations are, benefits and drawbacks and the suitability for clients.

The siren calls of the marketing teams have waxed lyrically over the different strengths and benefits of their various multi-managers. A more objective comparison is needed. A more multi-dimensional approach to evaluate not just performance but other key elements is required. I believe there are three ways to do this.

Total expense ratios – In a low-cost, low-inflation world, charges are going to be crucial and will be a key determinant as to whether a client has had an effective return on their funds. We should all know that full transparency is a prerequisite to the design and structure to all investment products. Those who are determined to cloak their costs behind opaque marketing will be exposed.

The TERs within multimanagers can be complex and are often different from just the plain vanilla Annual Management Charges highlighted in brochures and adverts. All the more reason for clarity.

Volatility – Most of us are not managing for the short term but rather the medium term. All the more reason then, to manage volatility in our clients’ portfolios and not to have irrational bungee-jumping brought about by short-term speculation. We have to regain investors’ confidence and not just bet on the latest fads.

Diversification – To achieve effective management of volatility and improve our chances of predictability, effective and diversification over a range of asset classes is crucial. We hear of managers saying they are diversifying through spreading their equities around the globe – yes, all very well, but they are still equities. From the excitement of private equity to the tedium of index-linked investments, there is no shortage of choice. Yet to see most multi-managers’ breadth of investment, we seem to be stuck with just equities and fixed-interest investments.

The point of the multi-manager process is to provide a consistency of performance. Being a star for a year or two may be self-gratifying but the fame will be illusory if the performance can’t be maintained. Justin Urquhart Stewart is a director of Seven Investment Management


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