FIve Multi-Management Myths Dispelled

Multi-Management is certainly not a new concept. But, the role of multi-managers is becoming far more pertinent these days as *retail investors start to understand the benefit of investing in multiple managers for reduced risk in their portfolios, plus the value they add that comes from extensive manager research.  As with any industry, as interest grows, questions, perceptions and concerns may become increasingly prevalent.  It is important for investors to distinguish the myths from the facts.

Myth # 1: Multi-Managers cost more
The first and most contentious myth relates to the perceived ‘extra layer of costs’ that multi-managers charge. Investors may feel that having a ‘middle-man’ conduct their investment affairs may be more costly than if they were to ‘project manage’ their own investments. But the reality is that it could cost investors more to invest directly with the managers than getting them through a multi-managed fund such as those that SYm|mETRY offers. Trevor Pascoe, CEO of SYm|mETRY Multi-Manager, an investment business within Old Mutual Investment Group SA (OMIGSA) says, “Due to economies of scale, the mandates we have with our asset managers allow us to negotiate very favourable fees. SYm|mETRY has the two largest retail multi-manager funds in the country, and this scale gives us excellent negotiating strength. This negotiation strength is enhanced by the fact that we also manage large institutional assets. We often show advisers that they are able to gain access to some of the best asset managers at a lower cost by working through a multi-manager than by investing with each manager separately. Why would you want to pay more to do more work yourself?”

Myth # 2: Short-term performance is an indicator of how good a manager is
Why use a multi-manager when you can simply use the performance figures of managers over the last couple of years and make your own investment selections based on that? If this was an effective methodology, there would be no need for trained investment experts. The reality is that performance is just one aspect of manager selection. “As an example we looked at the performance of a selection of balanced funds over nine years and found that if you had invested in the previous year’s worst performing manager each year, at the end of the nine-year term your return  would have been higher than if you had invested in the previous year’s best performing manager.  While performance is important, this example illustrates that it is not a reliable factor on its own. In addition, investors have to monitor performance for five years or longer, as well as how their investment philosophy and strategy manifests in different market conditions. If investors or advisers don’t have the time to research the entire universe of asset managers to ascertain the best investments at any point in time, they should consider a multi-manager,” says Pascoe.

Myth 3: Multi-managers always give average performance
The truth is that products can be designed to be passive, semi-active and fully active in nature.  Some investors may think that when you put a range of managers together, you may as well have gone for the index.   Pascoe says, “We believe, with complete conviction, that given thorough manager research, an investor is able to outperform the market. Our managers have, in fact, recently been far above the median. This is because our job is to find the right managers, those that are expected to outperform the market, and understand their strategy cycles and underlying strategies.  So when we blend managers, we know who best to blend for a better outcome.

The SYm|mETRY Balanced Fund of Funds, for example, has delivered strong returns over the longer term, returning 13.9% over seven years and 15.2% since inception, to end November 2011. This compares favourably to its performance target (CPI +7%) of 13.2% and 13.3%, respectively, over those periods. This means for each R100 invested at inception, investors would have R447 by the end of November 2011,” he says. The fund was also the first multi-managed fund to win a Raging Bull award for risk-adjusted performance.

Myth 4: If Multi-managed funds don’t constantly change managers, they’re stale
Investors may naturally feel edgy if one element within their portfolio underperforms in the short term. Since a good multi-manager combines managers with different strategies and philosophies, it is likely that when one manager outperforms the market, another will not. This is done to ensure diversification within a client’s portfolio and reduce risk. One of the biggest benefits of good multi-managed funds is the fact that managers are selected for very specific reasons, and those reasons are unlikely to change as a result of short-term performance. Thus multi-managed funds might have the same underlying managers for prolonged periods, but SYm|mETRY will constantly monitor and evaluate these managers to ensure they still offer the best combination to meet investors’ goals. So the reality is that the decision not to constantly change managers is a strategic decision designed to weather varying market conditions.

Myth 5: If you have a financial adviser, you don’t need to use a multi-manager
On the contrary, the role of multi-managers is not to mimic or disempower advisers, but rather to perform a support role, in the sense that we’re able to spend more time focusing on the research and monitoring of managers, while advisers can offer financial advice and build enhanced relationships with clients.  The adviser continues to look after investors’ needs, facilitating and managing transactions with financial services institutions on behalf of clients.  Meanwhile, in the background multi-managers are actively working to ensure that advisers are always equipped with the information they need to help their clients achieve their investment objectives.

At nearly 1000, there are almost two-and-a-half times more unit trusts in South Africa than shares listed on the JSE, making the South African investment landscape a complex minefield to negotiate. SYm|mETRY’S role is to demystify this complex environment and offer a focused range of products and tailor-made solutions for investors. Instead of investing in individual shares, multi-managers, by undertaking intensive quantitative and qualitative research, select top asset managers who are best placed to make the best investment decisions for clients. This means that investors get the benefit of more than just one asset manager. SYm|mETRY undertakes rigorous research, not only into performance, but also the strategy, philosophy and individual strengths of asset managers to allow strategic diversification. In this way, clients benefit from reduced risk due to the different behaviours of each asset manager under various market conditions.