Like factor investing, alternative Ucits or smart beta, it is hard to imagine now that the world of the multi-manager and their ‘funds of funds’ was once a novel concept to retail investors.
Having been first conceived in the ’90s, it was not until the turn of the millennium that UK funds of funds came to prominence with names such as John Chatfeild-Roberts, Bambos Hambi, Marcus Brookes, Gary Potter and Robert Burdett, who are all still mainstays today.
The argument for multi-manager continues to make sense just as it did 10 or 20 years ago; investors are benefiting from an expert’s asset allocation and fund selection decisions. Still, this comes at a cost, and post-RDR the idea of paying extra (multi-manager fees routinely top individual manager charges) rankles many, especially when there are other options seemingly doing the same thing for less.
Certainly, a threat to the sector is the rise of individual multi-asset funds, as well as model portfolio services offered by discretionary wealth managers.
Still, a glance at the Investment Association’s latest statistics for funds of funds suggests the sector is actually in pretty decent health, with funds under management at £109bn as at the end of November, accounting for 12.8% of the retail industry total. This has risen consistently over the past 10 years (see table opposite).
Success is hard to come by
However, these funds – even from big retail names – offer no guarantee of success, particularly for newer entrants. JP Morgan Asset Management announced late last year it is to liquidate its Fusion Funds range, run by Tony Lanning and Nick Roberts, after it failed to raise sufficient assets. The group blamed “limited prospects to build significant market share in the retail multi-manager funds of funds space”.
Similarly, while Henderson has a well established multi-manager range under the care of Bill McQuaker, its low-cost Core Solutions 3 Income and 5 Income funds launched in September 2012 have failed to catch on, raising less than £15m across both portfolios.
“New entrants will struggle; it is quite crowded out there and there are a few strong players that lead the way and have led the way for a long time,” says Ken Rayner, director at RSMR.
“A success story is L&G Multi-Index funds [3 to 7], which are relatively new, having launched in 2013, and have managed to develop a niche perhaps because they were one of the first indexing solutions coming from a mainstream provider.”
Rayner does see a niche for newer funds of funds from the likes of Vanguard, Dimensional and 7IM, which adopt an active/passive approach or use smart beta funds.
“There are portfolios where the managers are using an index but it can be tailored – in Dimensional’s case, small-cap value. There is much greying in the area of what it termed active multi-manager and passive multi-manager. It is quite difficult for an adviser to make their way through that today as it is quite cloudy.”