MULTIMANAGER funds are frequently touted as the next big thing in investment. Though not everyone shares this view, almost all experts agree that the multimanager approach throws some interesting light on thinking within the industry. Most importantly, private investors are given an insight into which funds the professionals rate.
Normally fund managers invest in shares and bonds and have nothing to do with other fund groups. But many multimanagers invest in other funds rather than shares (known as the fund of funds approach) and most are allowed to select funds not just from their own product range but from other investment stables as well.
So if several different multi-managers all pick a fund from a rival stable, that is the strongest possible recommendation since it is the experts’ choice. Viewed in this way, the regular reports of multimanagers can be seen as mines of information for the private investor. Funds in Focus invited Bestinvest, the independent financial adviser (IFA), to make a quick trawl through a number of multimanager portfolios and come up with a list of half a dozen of the most frequently purchased funds.
They were Liontrust First Income, Cazenove UK Growth, Artemis European Growth, New Star Higher Income, Framlington Equity Income and Schroder UK Alpha Plus. James Calder, of Bestinvest, says: “The Schroder and Framlington funds are both stockpicking funds, as is the aggressively managed Artemis European Growth fund, which operates via a stock ranking system. The New Star fund follows a rigid stock selection process, the Liontrust fund adopts different styles in different markets while the Cazenove fund aims for steady outperformance without undue risk.”
Those wanting to follow the experts can buy their funds or simply log on to the various multimanagers’ websites and obtain the information free.
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However, multimanagers are already alert to this possibility, though, interestingly, they are less worried about private investors following their lead than about other multimanagers copying their fund selections.
Some financial groups, such as New Star, are now limiting the amount of information they disclose to their multi-manager customers for fear that rival groups will make use of it. New Star publishes details of its holdings, but with a time delay of several months and no details of weightings.
But Jason Hollands, of Isis Asset Management, says: “This totally goes against the trend for greater transparency in all aspects of financial services. At Isis, whenever we make changes to our multi-manager portfolio, we immediately tell all IFAs with clients in the multimanager funds so that they can be informed.”
Paul Ilott, of Bates Investment Services, an IFA, says that private investors could use multimanagers’ choices as a guide, but points out: “Some of the funds in which multimanagers invest are not available to the public and people should buy funds only if they meet their risk profile and form part of a balanced portfolio.”
Mr Calder adds: “If you don’t know the full picture, then simply copying the purchases of multimanagers could be a risky game. You don’t know whether they are increasing or reducing a particular holding and the time horizon of a multimanager is usually much shorter than that of a private investor.”
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John Chatfeild-Roberts, of Jupiter, also urges caution but says that an examination of multimanagers’ choices is revealing. “If you added up all the different funds selected by the main multimanagers it would amount to only a tiny percentage of the total available. In other words, while there’s a huge fund universe out there, the professionals don’t think that many of them add much value.”