Over the last year - in the mixed investment 20 per cent to 60 per cent shares sector (formerly labelled cautious managed) for the year ending up to 11 May 2012, the most respectable growth has come from Sovereign Teachers Cautious Investment fund - posting a 5.8 per cent positive return in stark contrast to the sector coming in at -1.7 per cent. So you might be thinking that in the light of the market movements, this demonstrates that the multi-manager approach is weathering the storm and makes a strong case for investor attention? Given that the fund has an initial charge of 3 per cent and an AMC of 1.25 per cent, on the face of it the charging structure should not be a drag on performance. When compared with other single manager funds, the assumed diversification from the multi-manager structure in a period of significant volatility appears to have served the investor well. The problem here is once again that this is reflecting a very short-term investment viewpoint and with that come all the problems of spikes in performance of funds that are seldom repeated consistently. Only time will tell on the future of Cautious Managed - a bit of an oxymoron in my book as I seriously question why any investor who is indeed cautious would be investing in the markets in the first place.
Moving up the “risk” scale, the mixed investment 40 per cent to 85 per cent shares sector CF Crystal produced 6.3 per cent against a -4.1 – producing a significant out-performance against the other MM funds in the sector. On closer scrutiny this can be fairly attributed to two key factors:
• Higher equity exposure.
• More volatility across the asset mix.
So far so good and only to be expected but when we start to move the timelines out for longer periods the attractiveness of multi-manager falls away. Threadneedle Navigator Cautious Managed posting the best return over five years of 28.3 per cent in its sector, but this pales into insignificance against for example GLG Corporate Bond, posting a very healthy 87.7 per cent growth.
Some recent research produced by FE Analytics highlights the relative underperformance of multi-manager funds when compared with an active single manager fund. The numbers make interesting reading because:
• They cover longer time frames than simply the last 12 months.
• They include years where the markets suffered severe downturns, like 2008 and 2011.
• The years highlighted do include periods of storing volatility rather than just all plain sailing in the markets.
An additional concern for any investor is not just how much upside their fund is achieving but how is it managing the downside in volatile times, to try and preserve capital values. From the table we can clearly see that in both the particularly difficult years - 2008 and 2011 - the multi-manger funds lost 5.28 per cent and 3.76 per cent more than the active single manager fund. If the multi-manager approach was indeed achieving wider diversification then the numbers should surely look better than they do.
