Multi-manager funds combine a number of professionally managed investment options into a single offering. This strategy can provide crucial benefits that are otherwise difficult to achieve
A cornerstone of prudent investing is to ensure broad diversification in your portfolio. The reason behind this is that consistently identifying the next asset or market sector that will perform well is nearly impossible. By creating a portfolio which holds a wide variety of shares and asset classes, the investor is likely to benefit from reduced volatility and enhanced long term performance.
One of the key benefits of a multi-manager fund is the extra level of diversification it can provide. Investors gain access to all the usual benefits of a managed fund, such as company diversification and management expertise, with the added layer of multiple fund managers. This is important because rarely will all fund managers perform equally in all market conditions. By diversifying across fund managers, exposure to the performance of a single fund manager is reduced.
Manager diversification offers optimal exposure to those different investment styles, which provides a more consistent return experience throughout a market cycle. Simply put, your portfolio is exposed to specific areas of the market so that you do not miss out when one style happens to be performing better than another. This is illustrated in the chart below
The underlying fund managers that comprise a multi-manager fund should be actively monitored to ensure that they are delivering the best possible outcomes for investors in varying market conditions. Exposure to an underlying fund manager in a multi-manager portfolio can be increased, reduced, or removed completely depending on how an individual fund manager is performing, and how complementary it is with the other managers in the portfolio. Effective active management of a multi-manager portfolio is an important part of the process and can provide additional benefits for investors.
In constructing a multi-manager fund, identifying a great manager is an essential part of the process. Just as important, however, is recognizing fund managers’ varying styles or approaches to how they invest, such as value or growth investing. Manager diversification offers optimal exposure to those different investment styles, which provides a more consistent return experience throughout a market cycle. Simply put, your portfolio is exposed to specific areas of the market so that you don’t miss out when one style happens to be performing better than another. This approach blends managers together in an efficient way to the benefit of investors.