Investors who choose funds based on their recent performance could run the risk of eroding their initial investment through bad timing or exposure to the inevitable cycle of underperformance that every fund suffers.
“Some managers do, on average, beat their benchmark, and some measures of historic performance do assist in analysing managers, even those who do well will experience some periods of underperformance as all funds, no matter how well managed, perform in cycles,” says Ann Leepile, head of Manager Research, Investment Solutions.
“In addition, managers generally have a particular bias in their portfolios since this is, after all, the point of active management,” adds Leepile. “Investors would therefore do well to know what the fund manager’s bias is, and where they are in their performance cycle.”
However, the ability to comprehensively understand the asset manager landscape – including factors such as risk-returns tradeoffs, offshore versus onshore, asset class allocations and volatility – essentially the ability to choose the right fund manager at the right time – is not an easy task, and certainly not within grasp of the average investor.
Multi-managers with a stronger research focus on fund management capabilities and markets are certainly better-positioned to research the investment manager universe, apply proven methodology in the construction of risk-profile solutions for retirement funds and individual investments. In this was they are able to ensure that the individual investor is correctly invested in the right funds and asset classes – at the right time.
Low risk options
This extensive research and analysis capacity allows multi-managers to offer investors a relatively low-risk option in difficult markets. This is also attracting the attention of both retirement funds and individual investors who, according to Leepile, appreciate the complexity of investing in unstable markets while remaining focused on investment returns at lower than market risk.
Given the increased allocation to offshore for pension funds, the selection of offshore assets or managers is proving increasingly important.