The fund, which is available for a minimum investment of £1,000, is a low-cost alternative to multi-manager options that have become popular with discretionary IFAs. It will aim to achieve a long-term "real return" – defined by Investec as CPI plus 5 per cent gross of fees. It will start with £25m assets under management (AUM).
While the portfolio is not a pure multi-manager fund since it can hold individual companies and bonds, most of its assets will be invested in other funds, investment trusts and ETFs. It will be headed up by FE Alpha Manager Philip Saunders (pictured right), who is also in charge of the Investec Managed Growth and Multi Asset Protector funds – both of which are part of the Managed Solutions range.
With a total expense ratio (TER) of 1.61 per cent, Investec Diversified Growth is significantly less expensive than the average Absolute Return and multi-manager funds.
"In an environment where investors seek to protect their investments from potential erosion by inflation and low interest rates, the new fund aims to provide investors with attractive real returns," said Saunders.
"Exposure to each asset class is achieved through a combination of Investec in-house funds, external fund managers, passive funds and direct investments. Through taking this flexible approach, the fund focuses on capital preservation and aims to reduce the volatility of investors’ returns."
Although it has similar characteristics to many funds in IMA Absolute Return, Investec has opted to put the fund in the IMA Mixed Investment 40-85% Shares sector.
"I feel the Absolute Return has been a discredited sector," said Saunders. "It's a bit of a mess, full of very different funds with very different objectives. The problem is with investors' expectations; they want an 'absolute return' year-on-year, without realising how extremely difficult this is to achieve."
Saunders points to the portfolio's high level of flexibility as its biggest strength.
He commented: "In the solutions arena, pure funds of funds have reigned supreme in recent years. The problem with these, however, and the reason why many haven't done so well, is because it's extremely difficult to generate Alpha through manager selection – it's the dirty little secret of the multi-manager industry so to speak."
"This is a particular problem when the funds need to generate a great deal of Alpha in order to pay the bills, which tend to be pretty high."
"In some markets, such as the UK large cap space, it's extremely difficult to add value. UK equity managers tend to move into the small or mid cap space in order to generate Alpha, which is purely an asset allocation play. We, on the other hand, would rather hold a FTSE tracker for our large cap exposure, and do the small and mid caps ourselves."
While Saunders says the fund will draw on the expertise offered by Investec, he says he will look to external managers in certain markets.
"Any extra costs incurred by switching to a fund not managed by Investec will be absorbed by the TER," he added.
Performance of manager vs peer group over 5-yrs
Source: FE Analytics
According to FE data, Saunders has returned 18.34 per cent in the last five years – around twice as much as his peer group composite, with less volatility.
The strategies used by the other three funds in the range – Investec Managed Growth, Cautious Managed and Multi Asset Protector – are growth, growth and income, and growth with protection respectively. The first two have four FE crowns, while Investec Multi Asset Protector is yet to achieve a rating due to its short track record.