Group mutes risk with mix of styles

Skandia Investment Management aims to reduce risk on its funds of funds in international sectors by remaining style neutral – an approach that allows funds to avoid market swings.

Skandia Investment Management is one of only two groups to offer funds of funds in the international sectors. Alongside New Star it manages funds of funds in the IMA Asia Pacific ex Japan, Europe ex UK, Japan and North America sectors.

However, despite the number of funds listed by Morningstar, only four of the Skandia funds are sold to retail investors. These funds, which are prefixed with Blend in their title, form part of the group’s Asset Allocator fund range.

Ryan Hughes, fund manager at Skandia, says: “The other funds in the sectors are all segregated mandate and should not really be listed.” The only exception is the Skandia IM SF American fund, but Hughes says this is a single manager portfolio managed by T Rowe Price.

In addition to the four Blend funds listed below – Skandia IM Far East Equity Blend, European Equity Blend, Japanese Equity Blend and US Equity Blend – there is also UK Equity, UK Fixed Interest and Global Fixed Interest funds in the Asset Allocator range.

All seven funds were launched in April 2005. In August last year Skandia added to the range with the launch of the Global Emerging Markets Equity fund. “The emerging market fund is just one of two multi-manager products in the sector,” says Hughes.

“The funds were all launched at the request of advisers. They were developed so advisers can choose their own clients’ portfolio asset allocation, but still outsource the fund selection to a multi-manager. The concept has proved popular.”

Hughes says this is because while many advisers are comfortable choosing their own British equity funds for clients, they are less confident when it comes to picking overseas portfolios. This he says is because there is less accessible research on such funds available to them.

All of the Asset Allocator funds are designed to be style neutral says Hughes, hence the Blend tag. “The number of underlying managers in each fund varies, but it’s typically around six,” he adds. “The idea is that we want to get a nice mix of management styles.”

Take for example the Japanese Equity Blend fund. Hughes says the portfolio invests in a segregated mandate run by Alliance Bernstein, who he describes as a value manager. The fund also holds a segregated mandate managed by JP Morgan, who he says are more “growth-like” managers.

“We also invest directly in the Martin Currie Japan Alpha fund, which typically follows a momentum management style, and we are exposed to Schroder Tokyo, which is more defensive value,” he adds.

Finally, he says there are two rotational, go-anywhere type funds in the portfolio, the Old Mutual Japan Select and the Schroder Japan Alpha Plus funds.

“This mix of styles means that overall the portfolio is style neutral,” says Hughes. “It means the funds can avoid the large swings in styles that markets go through. As such the volatility of the Asset Allocator funds is significantly below that of their sectors [single manager funds included].”