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Johannesburg - With the bewildering array of products available to investors, multi-managed unit trusts have increased in popularity in recent years.
At one stage, it was all the rage among portfolio management companies and everyone wanted to go with the flow.
There are currently 111 multimanagers in South Africa, managing assets of R9.3bn to just under R20bn. These types of investment should continue to grow as the industry develops further and is better understood.
For investors who do not know exactly what they are letting themselves in for, multi-managed unit trusts are simply another confusing investor instrument.
The major advantage of multi-manager unit trusts is that they offer off-the-shelf solutions for people who do not wish to decide in which of the different unit trusts they want to invest, or decide how much of their money to out into shares, bonds, property or cash.
In a multi-managed portfolio, the manager decides which other portfolio managers he will use to put together a diversified portfolio.
The decision is based on the skills and investment styles of different portfolio managers.
Fairbairn Capital compares a multi-manager to a good vintner, who decides which varieties he is going to use to make a blended wine.
The idea is for underlying managers in the different asset classes to invest in a way that ensures the portfolio has adequate exposure to shares, bonds, cash and property.
Multi-managers currently adopt three strategies, says Mark Seymour of Alphen Acid Management.
The first strategy is the multi-managed trust that invests only in those unit trusts offered by that particular portfolio management company.
Secondly, there are multi-managers who invest in unit trusts of other portfolio management companies.
And finally there are the "hybrids", in which managers invest in a combination of their own and other company unit trusts.
There are a number of questions that one can ask about which of the three is best.
If the purpose of the multi-managed trusts is to give investors access to a portfolio manager who truly shines in his specific field, it makes sense to use only the unit trusts of other companies.
This ensures the independence of the manager concerned, but additional costs are involved.
In addition to administration and management fees, in multi-managed trusts investors also pay the management fees of the underlying managers, the fees of the linked investment service provider, broker's commission and VAT. The higher fees will affect the ultimate yield.
Seymour says the additional costs can to some extent be managed by the larger managers who can negotiate lower fees with the underlying managers because of the large sums they invest.
He says investors can watch their costs by making sure that the multi-manager discloses the total expense ratio (TER) of the investment and not merely all the fees.
The TER reflects the total cost of the investment, while "total costs" exclude the fees being paid to the underlying managers.
Johan Gouws, head of investment at Absa Multi Management, says if discounts can be negotiated the total cost of a multi-managed trust is often the same as that of other unit trusts.
"If one considers that the investment decisions are left to the best specialist managers, the expense is justified."
Seymour says it is cheaper to invest in multi-managed trusts than to invest in a company's own underlying trusts, but then questions can be raised about the independence of the managers.
The idea of a multi-managed trust is just that: to make use of different companies and portfolio managers.
It is important that investors acquaint themselves with the strategy of the different managers so they know what they're getting.
Seymour says it's best to choose a multi-manager who is semi-independent and does not hesitate to disclose the underlying investments.
- Sake24
