Timing is right for multi-managers

The appeal of fund of funds rises with record sales in retail, despite double-layer charges, but as the trend to outsource hots up providers face pressure from discretionary managers.

Multi-manager products are often criticised because of their double-layer of fund charges. Owen and Lowcock say that, while investors should be aware of costs, products offering strategic asset allocation can justify their higher fees. “You’ve got to balance off the charge with what you get for that charge,” Owen adds. “If a fund can demonstrate that it is adding value, I think you should be prepared to pay for it.”

Beckett does not use traditional funds of funds in its discretionary service, and only a small selection of Jupiter and Legal & General products appear on its wider buy-list. However, Owen uses multi-manager products such as SVM Global Opportunities for exposure to alternative assets. The £35m portfolio, which appears in her AFI selection, had allocations to private equity, hedge funds, property and resources at the end of July.

While fund of fund providers appear well-placed to capitalise on the trend towards outsourcing, a report published last week by Defaqto notes that the sector is likely to come under pressure from discretionary managers. A survey by the firm earlier this year found that 20% of advisers are already using discretionaries.

“We have certainly seen an increase in demand for information on discretionary managers,” wrote Fraser Donaldson, an analyst at Defaqto.

Owen says Beckett has considered using its discretionary service to create a fund of funds business. Possible options include setting up a similar model to Smith & Pinching, which runs a range of investment portfolios under the OPM Fund Management brand.

“There are various reasons why we haven’t gone down that route, but it’s not something that we’ve completely written off,” she adds.