Consistency leads to a fine romance

John Kelly, head of client investment at Abbey, says that fund manager loyalty, transparency and risk budgets are key to the long-term success of the Abbey Multi-Manager Equity fund.

The Abbey Multi-Manager Equity fund, which launched in September 2003, is Abbey’s highest risk multi-manager fund. The fund range is led by John Kelly, head of client investment at Abbey, who joined the company in 2001. “We don’t buy funds, we give people money to run funds on our behalf,” Kelly explains. “Each has their own geographical specification. We don’t have any international managers at the moment.”

There are 600 to 700 holdings in the portfolio. About half is exposed to the British market, while the other half is shared equally between America, Europe and Asia. “It is a hugely diversified fund,” says Kelly.

Different funds choose stocks in different ways, he continues. For example, Oechsle, a small Boston-based boutique, goes for long-term research, whereas State Street is quantitative in approach.

“Axa Rosenberg uses a complex factor model, which breaks down a company into different businesses and implies a valuation and growth rate,” Kelly says. “The different styles work well together and we spend a lot of time getting the mix right.

“In the UK, we use BGI, State Street and JP Morgan, and in the US we use Deutsche and Goldman Sachs. In Europe we use Oechsle, Axa Rosenberg and State Street, and in the Far East we have Schroders and RCM.”

Transparency and consistency are important. “We are explicit about the level of risk in each fund and we do this by asking our managers to run to a risk budget,” Kelly says. “To set up the risk budget we look at the style of the manager and how they take their bets. We then look at the underlying regions. The risk and return trade-off is as efficient as we can make it. The combination of all the managers gives the risk profile that we have said we will produce on the fund.”

Kelly says keeping things as constant as possible allows someone to look at the fund’s risk profile and decide whether or not it is for them. “If is suits them, come on board,” he adds.

He says he and his team are a long way from the “hire and fire” ethos that some multi-manager funds might choose. “We are long-term romancers of fund managers. We make sure we have confidence and understanding in the managers we pick,” he explains. “They can choose whichever sectors they want. The only constraints they have are regulation and the risk budget. The risk budget is like pocket money. You can spend it on anything but you can only spend it once.”