One increasingly popular option for stocks and shares Isa investors is a multi-manager fund. These funds still offer stock market exposure, but rather than selecting individual shares, their managers make investments in what they consider to be the best funds. Sometimes those fund selections will be other funds run by the stocks and shares Isa provider itself, but they could just as easily be funds run by another investment company.
Multi-manager funds, often described as fund of funds, are actively-managed vehicles. The manager is given an objective – to produce capital growth, income, or a combination of the two – and an investment brief – the markets and sectors from which that objective should be met. But rather than choosing shares in order to achieve his goals, the manager invests in a range of funds.
There are some real advantages to this approach. No single fund management company is ever going to have the best fund in every market at any one time. By offering access to outstanding funds operated by companies they might consider to be rivals, they give Isa investors the opportunity to access expertise from across the investment industry. There’s no need to miss out on the talents of one fund manager because you’ve invested with a different company.
Moreover, as very large investors, multi-manager funds are often able to arrange discounts on investment management fees. So while you might be able to build your own portfolio of top-performing funds, though it would take time and a more sizeable sum of money to invest, a fund of funds can give you the same breadth of investments at a lower price.
The other point to consider is that one of the reasons for investing in a fund is that you get a professional investment manager who uses his expertise to invest your money in the best possible assets. But given that there are as many funds to choose from as there are individual shares, so for many investors, it makes sense to have a professional in charge of that decision.
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There will still be some choices to make. Multi-manager funds offer exposure to different types of fund and have different objectives, so you’ll need to decide where you want to invest and with what in mind, just as you would with any other stocks and shares Isa. Some funds are more specialised than others, offering exposure to a quite specific market, while others are more balanced. Sometimes, they may even invest across several asset classes – bonds and cash, as well as equities, say. Some funds are geared towards producing income, while others concentrate on capital growth.
In practice, you are likely to find there are several multi-manager funds that meet the bill, in which case you’ll still have to take a view on which is the best option. That will depend on the same range of issues as any other investment decision – attitude to risk, investment aims, your view of which fund offers the best potential returns, and so on.
Moreover, as with any stocks and shares Isa, multi-manager funds can fall as well as rise in value, in line with the funds in which they are invested. Like all stock market investments, they’re a long-term holding – generally for investors prepared to leave their money alone for five years or more.
Pay close attention to the issue of charges. As fund of funds still have to pay other managers’ fees, albeit often on a discounted basis, they can sometimes be a more expensive option, so it’s worth checking. Also, multi-manager funds often charge performance fees in addition to their standard charges – these are only levied in the event that returns are better than those achieved by a specific benchmark.
Those issues aside, multi-managers are definitely worth considering for Isa investors. They give you access to a broad range of professional investment expertise at a cheaper price than you would pay yourself. 00