A foot in the door
So what of traditional funds of funds? In 2011, having merged its multi-manager and multi-asset teams, Schroders seemed keen to rationalise its exposure to the sector. However, its subsequent acquisition of Cazenove two years later led to renewed interest in the field.
“One of the key reasons I was so optimistic about the Cazenove acquisition was because with that came one of the market leaders in multi-manager, through Marcus Brookes, Robin McDonald and the team,” says Robin Stoakley, Schroders’ head of intermediary.
The firm currently offers a six-strong range of multi-manager funds: Diversity (£1.2bn), Diversity Balanced (£246m), Diversity Income (£184m), Diversity Tactical (£183m), International (£388m) and UK Growth (£93m).
Of Schroders’ previous venture, Stoakley says: “In a market like multi-manager where you have five or six established players, it is very difficult for a new entrant to break in. We had experience of this 10 years ago when we launched a multi-manager range in-house; it took us five or six years before we could even look to get any traction and we didn’t get that much.”
For Victoria Hasler, head of research at Square Mile Investment Consulting & Research, the real issue is cost and perceived value for money.
She explains: “Some of the multi-manager funds are pretty expensive. Given how RDR has affected fees on funds, and given that there has been a whole raft of new multi-asset funds launched with far lower ongoing charges, if anything kills them it will probably be that.
“A lot of the managers are very well respected and have done a good job in delivering what they said they would deliver, but I would suggest they are now facing a bit of a battle against some of their lower-priced competitors.
“Multi-managers vary in cost depending on what share class you use. Most of the on-platform share classes are now clean and come in anywhere between 1% and 1.8% for the ongoing charges figures (OCFs). The retail share classes are much higher, often over 2%.”
Stoakley points to an OCF on Schroders’ flagship Diversity fund at 1.25%. He acknowledges that firms offering funds of funds are recognising that price is a big consideration for advisers, particularly in a lower-return environment, and believes there has been some price compression in the space.
“There is no question that multi-manager isn’t the cheapest and there is definitely a price premium over what I would call an in-house multi-asset fund – ours are 30-40bps cheaper than Diversity on a like-for-like basis,” he explains.
“The principles and the objectives can be similar but, in my view, for multi-manager you are not only paying for asset allocation skills but also manager selection skills and manager diversification skills. If you believe that is worth paying for, then multi-manager is still an attractive proposition.”
Delivering the goods
Post-RDR, the need for outsourcing solutions is greater than ever and, as the IA stats show, funds of funds are still very much in demand. For Peter Askew, senior fund manager and CEO at T Bailey Asset Management, fees are only half the story, with the majority of multi-manager products meeting and often exceeding their stated performance targets.
“The trend for many advisers is to outsource their investment function,” he says. “Many have chosen the DFM route, citing lower cost, but incur a VAT cost for a less transparent construction. Platforms add an extra charge but investors can come directly.
“There will be a number of asset gatherers who don’t deliver the desired outcome but there are those that can and do with an OCF around 1.5%. I suspect that when size isn’t a constraint – when funds become too large – the cost can justify the outcome.”
Unlike single-strategy managers, who can bask in glory of a shrewd sector call just as they can crash down the quartiles – and often lose their job – on a bad decision, determining the relative merits of different fund of funds vehicles can arguably be a more complicated affair.
