Rule opens door to multi-managers

The panellists added six multi-manager portfolios following a relaxation of the rules, bringing the total to 11 funds across all three indices and allowing access to a wider range of asset classes.

The rules regarding multi-manager funds were relaxed for the Adviser Fund Index (AFI) panellists on May 1. Before that date, they could only include multi-manager funds if they were an integral part of their in-house investment model.

Now, however, multi-manager funds can be included regardless of their function in the model, but they cannot make up more than 30% of each portfolio.

In May, six multi-manager funds were added to the AFI: the Cazenove Multi Manager Managed Equity, Investec Capital Accumulator, Jupiter Fund of Investment Trusts, L&G (Barclays) Multi Manager US Alpha, New Star Global Strategic Capital and the Premier Select Growth.

The CF Midas Balanced Income fund was already in the AFI, but in May, two more panellists included it in their Cautious portfolios. One more panellist elected the Cazenove Multi Manager Diversity Target Return fund.

In total, there are 11 multi-manager funds across the three AFIs, with most appearing in more than one index. There are five multi-manager funds within each of the AFI portfolios: Aggressive, Balanced and Cautious.

Tim Cockerill, head of research at Rowan & Co Capital Management, does not use any multi-manager funds. They are his competitors, he says.

“We compete head-to-head [with multi-managers],” says Cockerill. “We are doing the same job. We do a lot of discretionary work for other IFAs. They come to us rather than go to a multi-manager. We would not use a multi-manager, unless there was something specialist we felt they could do better than us. We can provide all the wrappers and an IFA can select a strategy with the client.”

An advantage Cockerill says he has over multi-manager funds is he can take on the investments his clients have. “We can manage a client’s portfolio and move it in line with our model,” he explains. “That’s an advantage we have over multi-managers. When clients have capital gains tied up in a portfolio, we can gradually move it into the model. They don’t want to pay 40%.”

Unlike Cockerill, Chartwell Investment Management is keen on multi-manager funds. James Davies, investment research manager at Chartwell, says he likes the diversity of asset allocation that multi-manager funds can provide. Nonetheless, Chartwell did reduce its exposure to multi-manager funds in the last rebalancing. Davies says this is because it wanted to increase its exposure to single-asset-class funds.

“Previously our house view was entirely multi-asset,” says Davies. “By default [multi-asset funds] tend to be multi-manager funds of funds. But we relaxed our criteria [in the last rebalancing] and brought in more single-asset-class funds, hence we reduced our multi-manager [exposure].”

“We like the diversity [multi-manager funds] can bring in terms of the asset allocation,” says Davies. “We like funds that are allowed to invest in a full breadth of asset classes, including commodities, structured products and perhaps funds of hedge funds. We really like to see portfolios that can provide that potential.”

Davies holds two Midas funds in the AFI. He has the CF Midas Balanced Income in both his Cautious and Balanced AFI portfolios, and holds the CF Midas Balanced Growth fund in the Aggressive.

Davies also holds the Schroder Multi-Manager Strategic Balanced fund in the Aggressive AFI. In the Cautious AFI he has the Insight Diversified Target Return and the Cazenove Multi-Manager Diversity funds.

Like Cockerill, Darius McDermott, managing director, Chelsea Financial Services, does not hold any multi-manager funds in the AFI. He says it is unlikely that he will hold any in the future and, if he did, he would hold funds such as the Insight Diversified Total Return or the HSBC Open funds – funds that have “the intention of giving total return”.

“We don’t use multi-manager,” McDermott says. “[If we did] it would be in the more cautious [portfolios] in a total-return fashion. I could see us using those in a difficult market. But if we were worried about the market, we would be more likely to put together cash, bonds, property or funds of hedge funds,” he adds.

FRANCES HUGHESStaff writer, Fund StrategyThe Adviser Fund Index series comprises an Aggressive, Balanced and Cautious index each tracking the performance of portfolio recommendations from a panel of 19 investment advisers. For each risk profile, all panellists specify a weighted portfolio of up to 10 funds from the authorised UK unit trust and Oeic universe that, when aggregated, define the constituents and weightings of the three AFIs (see www.fundstrategy.co.uk/adviser_fund_index.html).