Use of cash and ETFs could fragment multi-manager

In its latest multi-manager report, Blending Talents, Defaqto points out that uncertain market conditions have led some multi-managers to hold big cash weightings and passively managed exchange-traded funds rather than being fully invested in actively managed funds.

Defaqto principal consultant for investments Fraser Donaldson says the use of ETFs means some multi-manager funds are not as actively managed as others. Using cash as an asset class may also have implications for advisers who think it is their job to allocate their clients’ cash weightings.

Donaldson says that different types of multi-manager funds have always appealed to different types of IFA in that those who want to outsource asset allocation can choose balanced managed type multi-manager funds as core holdings. In contrast, advisers who make their own asset allocation decisions can build portfolios from multi-manager funds that invest in particular regions or sectors.

Donaldson sees the use of ETFS and cash within portfolios as an issue that could fragment the market further.

He says: “The multi-manager market is going to fragment depending on how much the adviser can do. Discretionary fund managers are also popping up in retail market and advisers can outsouce investment management through them. A lot of multi-managers started as discretionary managers with stockbrokers and we could see growth in this area.”