The attractiveness of the multi-manager solution, particularly to smaller investors, means it is no surprise to find that the number of institutions offering such a service has been increasing steadily in recent years.
A multi-manager investment approach involves entrusting investments to a number of fund managers across a wide range of investment sectors. This can be achieved by investing through either a fund of funds or into one fund, which, in turn, is managed by different managers from different disciplines.
What Are The Advantages?
The investment argument for a multi-manager approach centres around ease of dealing, flexibility, best of breed and access to institutional managers, all of which average investors could not access on their own. All this can be done within a tax-efficient wrapper, such as an open-ended investment company (Oeic) or unit trust structure.
The usual approach to a fund of funds is through a portfolio of open-ended investment vehicles. The concept of a fund of investment trusts or a fund purely constructed from zero dividend preference shares is less well known and less used, despite there being some distinct advantages to this approach.
The key advantage to a fund of investment trusts is the closed-ended structure which makes it possible to invest in assets that are less suited to an open-ended structure, e.g. property, forestry or private equity. Such assets offer opportunities for diversifying a portfolio, as they are historically not correlated to equity markets.
In addition, closed-ended structured products can offer easy and simple access to global stock markets or particular themes or sectors.
Many asset management houses view their investment trusts as flagship funds, so appoint their best managers to manage them. Shareholders of investment trusts can have their returns enhanced by balance sheet activity, such as dividend smoothing or share buybacks. They also offer the opportunity to make money in falling equity markets through investment in hedge funds. Also, discount pricing anomalies allow opportunistic dealing, which can enhance overall returns.
The zero dividend preference share class of a split capital investment trust offers investors capital gains only. A fund of zero dividend preference shares gives more cautious investors a diversified portfolio within an extremely flexible and tax efficient structure. Although such a fund will lag the broader market in a bull phase, it should perform well in less certain times.
Smith & Williamson has been successfully managing several funds of investment trusts for a number of years, with our Global Investment Fund having just received an industry award in recognition of consistent performance. Our Dublin-based fund of zero dividend preference shares also offers a broad exposure to this asset class.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.