Multi-manager funds can offer a world of choice and diversification in just one fund, but for many investors they remain something of a mystery.

What exactly is a multi-manager, how do they select investment managers and how does this approach benefit investors? Put simply, a multi-manager invests your money across a wide range of carefully chosen investment managers who specialise in certain types of securities – like shares, listed property or bonds – or investment styles, like passive and active investing.

This means the investor has access to a single portfolio diversified across multiple investment managers, multiple asset classes and differing investment styles. Some funds take diversification even further by investing across geographic regions, industries and currencies. This level of diversification forms one of the key potential benefits for investors: consistency of returns.

As professional investors, we know that markets move in cycles, and that no single investment style will deliver superior performance across all market cycles. Consequently, multi-managers construct their funds in such a way as to avoid exposure to any one investment style. Instead, they aim to invest across complementary investment managers and styles, asset classes and even countries. By doing this, the performance of a multi-manager fund is somewhat insulated from the extremes of prevailing market conditions and the fund should be in a better position to generate stronger and more consistent performance with considerably less risk.

Multi-manager funds also give investors access to some of the world’s leading investment managers – something that individual investors generally find difficult to do. It’s also good to know that your investment and the underlying fund managers are being monitored by an experienced team of investment professionals whose main priority isn’t managing money but managing the people who manage money.

The ability to select the right mix of investment managers is really one of the crucial elements of the success of a multi-manager fund – that’s the one step where a good multi-manager can add a lot of value. To do this, a multi-manager generally begins with a universe of potential investment managers and then narrows down the choice based on each manager’s ability to meet the fund’s objective. This typically involves an analysis of the manager’s investment strategy and process, its risk controls, and its team and performance history. As an example, Advance have a six-step approach that starts with objectives and ends with a continuous review of how each manager is meeting these objectives.

1. Objective setting – set the objectives for each multi-manager funds to provide a sound framework for determining the right asset allocation and sector strategy mix.
2. Asset allocation modelling – funds are created around long-term strategic risk/return forecast assumptions for the major asset classes.
3. Sector structuring – consider each asset class individually and according to its unique features, dynamics and risks.
4. Selecting managers – selection process ensures strict adherence to rigorous and considered decision-making.
5. Blending managers – manager-blending process for each multi-manager fund is focused on allocating the right amount of money to selected managers to ensure that the overall portfolio performs well across all market cycles.
6. Monitoring and review – monitor and review each multi-manager funds on a regular basis to ensure they remain well-positioned at all times.

The benefits of combining a range of specialist managed funds in your portfolio are clear: reduced investment risk and greater exposure to a broader range of opportunities. If you would like to know more about multi-managers or how to invest in BT’s range of multi-manager funds, please visit our multi-manager funds page or speak to your financial adviser.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.

[1] Multi-Manager of the Year 2009 – Money Management Fund Manager of the Year Awards