Multi-manager investment enables your portfolio to be managed by several different fund managers, each selected for their expertise in specific market sectors. This ‘open architecture’ approach reduces your reliance on any one investment manager making the right decisions in all conditions, and provides the opportunity to have some of the world’s best managers looking after your money.
One of the principles of successful investing is diversification, which gives your portfolio the chance to produce positive returns over time without being vulnerable to any single area or stock under-performing. The first layer is across asset classes (shares, bonds, cash, property), then across geographical regions, market sectors, companies etc.
You can add a further layer of diversification by using a dynamic ‘multi-manager’ approach, which reduces reliance on any one manager making the right decisions in all market conditions.
Specialists vs generalists – a sporting analogy
Since many of us enjoyed watching the Olympic Games this summer, this is the perfect time to use a sporting analogy to explore this investment approach.
One event that combines the qualities listed in the Olympic motto Citius, Altius, Fortius (faster, higher, stronger) is the decathlon. Decathletes have to be skilled at 10 different disciplines – speed for sprinting, stamina for distance, strength for the field events etc. But while the decathlon champion performs at extremely high standards across ten disciplines, the individual event specialists frequently achieve better results.
Let’s compare the performance of the decathlon gold medallist at the 2020 Tokyo Olympics against the gold medallists in the individual disciplines. The decathlon champion Damian Warner ran the 100m in 10.12 seconds. Lamont Marcell Jacobs took just 9.80 seconds in the individual event. Warner threw the javelin 63.44m; the event winner threw 87.58m. The results of the other eight disciplines tell the same story – the specialist performed better than the generalist every time.
You would not expect a sprinter to also specialise in javelin or pole vault; specialists tend to be just that – specialists. There are many situations in life where a specialist performs more efficiently and delivers better results than a generalist, and this is particularly true in investments.
Just because an investment manager is skilled at managing UK equities, for example, does not mean they will be as successful at managing US or Japanese equities. Managers also tend to specialise in a certain style of investing, and these styles move in and out of favour according to economic and other factors. They will, therefore, produce impressive results in certain conditions but below-average ones in others.
Some investors rely on just one or two fund managers to look after their investment capital. But wouldn’t you prefer to have individual specialists managing the various areas of the market your capital is invested in?
Multi-manager investing
Today most investors agree that holding different asset classes and different regions and sectors in their portfolio spreads risk. Multi-manager funds add a further, increasingly important, level of diversification to your portfolio.
You will benefit from a team of specialist managers, as well as diversification across multiple investment styles within each fund, with different managers looking after one style. So one fund could have five or more specialist managers, covering a variety of styles (growth, value, quality, risk management, market oriented etc).
This complementary blending of managers and styles can reduce investment risk, regardless of which style is preferred, and help provide more consistent returns across different market environments.
Just like a strained muscle would hamper the decathlete in all his events, if prevailing market conditions are unfavourable to a single manager’s investment approach, performance may suffer. Multi-manager spreads risk as it lowers the investor’s dependence on the success of a single manager’s approach.
Going back to the sporting analogy, in the world of athletics individual champions can easily change from year to year. The same can happen with investment managers, but the multi-manager firm’s research is designed to find the next champions. They constantly monitor their funds, so that managers can be changed as and when necessary to improve performance for clients.
Multi-manager investing is not designed to attempt to win a gold medal in just one particular season. Rather, it aims to produce consistent results, season by season, over a long-term period.
This investment approach can prove suitable for various investors with different needs. However, you should always discuss your requirements with a professional financial adviser, as your investment strategy should be targeted to meet your personal circumstances and objectives. Your investment planning should also be combined with effective tax and estate planning strategies to maximise wealth preservation opportunities.
At Blevins Franks, we combine investment advice with effective tax and estate planning strategies to maximise wealth preservation opportunities.
Contact Blevins Franks today.
These views are put forward for consideration purposes only as the suitability of any investment is dependent on the investment objectives, time horizon and attitude to risk of the investor. The value of investments can fall as well as rise, as can the income arising from them. Past performance should not be seen as an indication of future performance.
