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First among equals

Multi-manager is a popular strategy, but some multi-manager funds are cut from a finer cloth…
Kepler Trust Intelligence
Last update 25 February 2020

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Alliance Trust. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Multi-manager funds are a popular category with investors and for a reason: the ability to ‘fire and forget’ by investing in a one-stop investment shop is tempting for those of us without the time, experience and money to allocated and then repeatedly rebalance our own portfolios.

However, that doesn’t mean these seemingly simple vehicles are a panacea. While investors look to these funds to invest across a range of stocks and asset classes, there is a risk that too much diversification can lead to sluggish or muted returns, or leave a fund open to criticism as an ‘index-hugger’ offering little more than a passive vehicle, but at higher cost.

At the same time, investors in mainstream open-ended multi-manager funds can face a serious downside, in the form of multiple layers of fees. While these funds charge a fee to manage your investment, the underlying funds they own will also be charging a fee. Although multi-managers can negotiate these underlying fees down from their ‘street’ rate, the cumulative effect can result in charges of 150 basis points or more, which over years of compounding become a serious outlay.

The right tools for the job

There is an alternative fund of funds option available to investors. Using the advantages of the closed-ended structure the team behind Alliance Trust has, since it was relaunched as a multi-manager vehicle in 2017, created a multi-manager model that counters the criticisms discussed here and seen a significant step up in performance.

Alliance Trust has for years focused on being the kind of fund that investors can invest in for years, or even generations, without having to monitor their investment too closely. However, three years ago the board took the decision to move the trust over to a multi-manager model, in a bid to counteract three key challenges: overdiversification, volatility and high charges.

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Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.