Forget using ONE star fund manager, now you need a team of them!
After the staggering collapse of Neil Woodford’s empire...
WHY trust one star fund manager with your cash when you could spread the risk with very little extra effort? In the wake of the Neil Woodford scandal, which has left thousands of savers barred from accessing their money, investors are understandably nervous.
As we revealed three weeks ago, many are now abandoning actively managed funds altogether and instead turning to trackers that replicate the performance of a specific index.
But another alternative is to opt for what’s known as a multi-manager fund.
Run by a professional manager, this type of fund invests in a host of other funds. Some of these may be run by other managers, while others could be trackers.
The aim is to diversify your investments as much as possible, reducing your losses if one fund performs poorly.
For armchair investors who lack confidence and struggle to work out the right mixture of active and passive funds, these ‘one-stop shops’ could prove incredibly useful.
In fact, the amount of money being poured into multi-manager funds has jumped from £157billion this time last year to £165billion, according to figures from The Investment Association.
Together, the funds currently account for 13 pc of the investment market.
Alex Farlow, of investment research group Square Mile, says: ‘Multi-manager portfolios take the hard work out of fund selection by researching, selecting and monitoring funds, then blending them together in a diversified portfolio so that you don’t have to.’
Investors’ money is split between funds that invest in shares, bonds, cash and ‘alternative’ assets such as infrastructure, property or gold.
Jupiter, Premier Asset Management and BMO Global Asset Management run some of the best known multi-manager options.
At BMO, there are ten funds to choose from in its multi-manager Lifestyle and Navigator range.
Between 13 pc and 18 pc of savers’ cash is invested in passive funds, with the remainder in carefully selected active funds.
Mr Farlow tips the BMO Navigator Distribution fund. He says: ‘Managers Rob Burdett and Gary Potter have in excess of 20 years’ experience and have been working together for the majority of that time. They look for new talent in fund management, so their choices contain names that might be unfamiliar to the average investor.’
For example, they were early investors in Prusik Asian Equity Income managed by Tom Naughton — a successful fund now closed to individual investors.
To spread the risk, they typically hold around 30 funds, with investments in equities (shares), bonds and alternative assets. If you had invested £10,000 five years ago, your pot would now be worth £12,591 after fees. The annual fund charge is 1.44 pc.
Eagle-eyed investors will notice this charge is higher than if you invest directly in a fund — which is on typically less than 1 pc.
Multi-manager funds are more costly because investors pay a fee for the initial fund itself and then for the individual funds on top.
The rationale for this double layer of management charges is that you have professionally crafted diversification, the simplicity of a one-stop investment solution and the promise of ongoing review by the manager who will monitor the funds. Multi-manager funds can also use their buying power to access funds not available to the retail market and negotiate discounts on initial and annual fees.
Regardless, investors must still remember that higher charges can significantly eat into returns, so you must work out if the price is worth paying.
Jupiter’s Merlin range has balanced, growth, income and conservative funds. They charge between 0.99 pc and 1.79 pc.
Chris Salih, of FundCalibre, tips Jupiter Merlin Balanced, which favours experienced managers with established track records of delivering strong returns through different market cycles. For example, it invests £14 of every £100 of savers’ money in Terry Smith’s Fundsmith Equity — currently its second-biggest holding.
Over five years, the Jupiter fund has turned £10,000 into £15,192 after fees. The annual fund charge is 1.6 pc.
Mr Salih says: ‘It’s on the expensive side, and I wouldn’t be surprised if Jupiter addresses this at some point. But, ultimately, it is performance after fees that is important, and the team have continually produced the goods over the long-term.’
For investors seeking an income in retirement, Mr Farlow also likes Premier Asset Management’s Multi-Asset Monthly Income fund, managed by David Hambidge.
THE fund invests in specialist incomepaying funds, which include infrastructure, specialist property investments and peer-to-peer lending vehicles.
Over five years, it has turned £10,000 into £13,034. The annual charge is 1.23 pc.
Mr Farlow of Square Mile says: ‘If you pick the right multimanager funds, it will be worth paying for some seriously experienced investors with impressive track records and strong research teams. But there’s pressure on multi-managers — and all fund managers — to drop prices.’
Multi-manager funds have not been immune from the Neil Woodford fiasco.
Hargreaves Lansdown, the UK’s largest fund supermarket, runs an £8billion in-house multi-manager portfolio range that invested in the soon-to-be wound-up Woodford Equity Income fund.
However, unlike investors who hold the fund directly, those with money in the Hargreaves funds are free to sell their holdings.
And investors have been withdrawing money in droves, pulling £400million over the past four months.