Self-made portfolios a dangerous game, say experts
Investors who picked the very best sector-specific funds in recent years would still have fallen short of the best-performing multi-asset portfolios.
By Joshua Ausden, News Editor, FE Trustnet
Friday September 07, 2012
Investors who rely on their own expertise to construct portfolios would be much better off handing the reins to a multi-asset manager or multi-manager, according to industry insiders, who believe funds of this type more than justify their higher fees.
The reaction comes in light of a recent FE Trustnet
poll that found 83 per cent of our readers prefer building a portfolio of different investments rather than holding a single “all-in-one” multi-asset fund.
Richard Hancock, analyst at the Financial Management Bureau, says only professional investors with plentiful resources are qualified to make specific asset-allocation decisions.
"I’m a big fan of multi-manager, even for my own personal investments," he commented. "Even before you take into account transaction costs, multi-managers have far more time and resources than an IFA."
"They can also get access to certain investments that we can’t get exposure to."
A highly rated fund such as Findlay Park American, for example, is unavailable to retail investors, but multi-managers can still access it.
"Moreover, from an adviser's point of view, holding a number of specific portfolios is completely impractical; if I wanted to sell out of a Neil Woodford
fund because I liked Threadneedle instead, I’d have to send about 400 letters to all my clients alerting them to the change. It’s ridiculous."
Hancock rates Cazenove’s stable of multi-manager funds particularly highly, as well as David Coombs’ Rathbone Multi Asset Total Return
and Multi Asset Enhanced Growth
portfolios, and the Baring Multi Asset
Paul Davis of Clear Financial Advice is of a similar opinion:
"Why try and mimic someone like Martin Gray
when you can buy the real thing? Yes, you have to pay a little more for the pleasure, but I’m of the opinion that you get what you pay for."
"IFAs and private investors get all the information after the event, which is why you get so many people chasing returns that have already happened."
"Multi-asset managers – well the decent ones, anyway – are proactive rather than reactive, because they have superior time and resources."
Davis is a big fan of multi-manager funds – listing Gray’s CF Miton Special Situations Portfolio
and Cazenove Multi Manager Diversity
as among his favoured options – but also likes single-manager multi-asset products, such as Sebastian Lyon’s Trojan
fund, and Iain Stewart’s Newton Real Return
Even if investors manage to select the very best-performing sector-specific funds, it doesn’t necessarily mean they will outperform a proven multi-manager or multi-asset manager.
According to FE data, a portfolio of every FE five crown-rated fund split across the current asset-class weightings in IMA Mixed Investment 20-60% Shares would have fallen short of four funds in the sector over five years.
During this period, the fantasy portfolio would have returned 30.58 per cent – well short of the 57.48 per cent amassed by Steve Russell’s CF Ruffer Total Return fund.
Performance of funds and fantasy portfolio over 5-yrs
Source: FE Analytics
Three other funds in the Mixed Investment 20-60% sector – CF Cautela, Scottish Mutual Cautious and Invesco Perpetual Distribution – have also returned more than the fantasy portfolio.
The fantasy portfolio does come out on top of the sector over three years, however, but only 0.91 per cent ahead of Invesco Perpetual Distribution
It is the same story in IMA Flexible Investment; a portfolio of every FE five crown-rated fund split across the current asset-class weightings in the sector would have fallen short of five funds over five years.
These include Trojan, CF Miton Strategic Portfolio and CF Ruffer Equity & General. The Trojan fund has also delivered more over three years.