Witan’s Andrew Bell tells Faith Glasgow about the unique value of a multi-manager approach.
Most investors are familiar with the idea that diversification can help reduce the risk attached to their portfolio and smooth total returns over the longer term. It’s a simple principle: not having all your eggs in one basket means the risks of out-and-out failure – though also the chance of stratospheric success – are diluted. Moreover, even if holdings in a portfolio all do equally well over time, it’s likely that their fortunes will ebb and flow, so you should get a smoother ride.
However, as Andrew Bell, chief executive at Witan Investment Trust, points out, diversifying your portfolio is not the same as having multiple holdings. He says: “If you hold several funds with a similar approach, you’ll probably find they overlap, intensifying your exposure to a limited number of stocks.”
Conversely, choosing stocks or funds for diversification alone may invite pedestrian performance. “A cocktail of value, growth and momentum funds will likely result in index-like performance and higher than necessary costs,” Bell adds.
Successful diversification therefore entails balancing the mix while retaining strong performance. A multi-manager approach is valuable in that respect. Global multi-manager funds can cover regional markets with, for instance, different sector compositions or growth rates. And by using different managers with specific approaches, the mix can be further enriched. Bell says: “Witan’s three global managers have US weights varying between 25% and 50% and UK weights between 13% and 36%, and two hold nothing in Japan.”
Another advantage of using a multi-manager is that the manager can add value by choosing specialist managers and an appropriate blend, and by gearing judiciously. Bell adds: “Also [multi-managers] may be steadier during market stress, when emotion can lead private investors to buy high or sell low.
“The principal benefits of a multi-manager approach are that it plays to the strengths of particular managers and diversifies specific manager risk – ensuring peaks and troughs don’t coincide and diluting the risk of mismanagement.”
Additionally, portfolio managers can access institutional-focused managers who may not be available to individual investors. And they can invest in funds closed to newcomers. Multi-managers won’t always get their calls right, but they should put in place a portfolio strategy and disciplined manager selection, and take proper account of the influences of economic growth, valuations and economic or political events on returns.
A big criticism levelled at multi-manager funds is that investors pay two layers of charges – for the underlying funds and the portfolio manager’s skills. However, says Bell: “With its average manager portfolio worth £200 million, Witan bargains hard on fees. We seek the best value from managers, not necessarily the lowest fees – it is performance after fees that counts.”
Economies of scale come into play as funds grow. Witan has £2.2 billion under management, so its management costs can be spread broadly. The ongoing charges figure is 0.83% on its latest (31 July 2019) factsheet.
Multi-manager funds are unlikely to shoot the lights out. But a good fund can provide a balanced and affordable investment package that ticks most boxes as a solid core holding.
Andrew Bell is chief executive at Witan Investment Trust.
Disclaimer Witan Investment Trust plc is an equity investment. Please note that past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise as a result of currency and market fluctuation, and you may not get back the amount originally invested. This material is a marketing communication issued and approved by Witan Investment Services Limited for information purposes only and does not constitute a solicitation or personal recommendation in any jurisdiction. Witan Investment Services Limited is registered in England no. 5272533 of 14 Queen Anne’s Gate, London SW1H 9AA. Witan Investment Services Limited provides investment products and services and is authorised and regulated by the Financial Conduct Authority.