In the active world, is it ok to have more than one fund from one manager in a portfolio? We think there are differences for single-asset funds and multi-asset funds.
For single asset funds, one reason for not having multiple funds run by the same team is key-person risk. For multi-asset funds, the issue is less pronounced owing to team structures, but it really depends on the strategy. So when building an investment portfolio, is it ok to have more than one fund from one manager? We think it depends on the context. According to Jackie Qiao, head of fund research at Elston Consulting, key-person risk is reduced when two elements are in place. Firstly, the success of the fund relies more on the overall capability and consistency of the team rather than just one individual's influence. Secondly, the investment process needs to be “robust and disciplined”. However, there are some considerations to keep in mind. For instance, when utilizing multiple funds managed by the same team, the factors to consider differ between security selection funds and asset allocation funds. For security selection funds, it can be beneficial if the investment philosophy and approach are similar. Qiao explains, “For example, a team focusing on UK small-cap and UK small-cap value shares a lot of overlap. But if the security selection strategies vary significantly (like UK small-cap versus UK large-cap), it is less likely that there is overlap, and we could question whether the same team can manage both.” In the case of asset allocation funds, the emphasis is on multi-asset capabilities. For example, when considering a managed Equity, Bond or Alternatives allocation fund, there is a logic to having funds from the same range, that are managed by the same team to a consistent investment outlook with “broad diversification and dynamic asset allocation management.” Qiao notes that having a consistent approach across asset classes from the same team ensures a consistent outlook. “It would be unusual to have an equity fund positioned for rate hikes and a bond fund positioned for rate cuts. Therefore, a single team-based approach for asset allocation funds is more sensible than for security selection funds,” she concluded. Read the Trustnet article here featuring Elston's Jackie Qiao on key things to consider. Comments are closed.
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