Lonsec releases 2010 Multi-Manager Sector Review


Lonsec’s 2010 multi-manager universe consists of thirteen managers, of which twelve were formally researched and rated as part of this Sector Review. Multi-managers included in this review offer products across a range of asset classes, both multi-asset class and sector specific. Deanne Fuller, Senior Investment Analyst, commented, “The 12 managers reviewed map through to 146 funds and in most cases, the rating assigned to the manager applies across the various multi-manger sectors they manage.”

Of those multi-managers reviewed, four received Lonsec’s highest rating, Highly Recommended. These were Optimix, Mercer, Russell and Advance.

Key themes to emerge from the Sector Review

Dynamic asset allocation

“A number of managers introduced Dynamic Asset Allocation (DAA) in 2008-2009 to take advantage of the severe mis-pricings post the GFC,” commented Fuller.

“2010 has seen most managers wind back their DAA positions as market dislocations have abated.”

DAA is the medium-term (6-12 months or longer) tilting away from strategic asset allocation positions and there will often be long periods when no positions are taken.

“According to attribution data supplied by the managers, DAA contributed positively to the performance of the majority of multi-manager funds,” observed Fuller.

Index and enhanced index strategies in global equities

Index and enhanced index strategies have long been used in the Australian property and fixed income sectors, but this year has seen a significant increase in the use of such strategies within the global equities space.

“The key driver behind this trend is the desire to reduce the pressure on the fee budget as managers increase exposure to alternative assets. A secondary aim is to achieve consistency and diversification,” said Fuller.

“In Lonsec’s view, while the use of index and enhanced strategies will have the desired effect of reducing fees, it will also lead to a reduction in the alpha potential in this part of the portfolio.”

Alternative strategies

Alternatives continue to gather momentum, with nearly all multi-manager funds now employing a range of strategies. Managers continue to widen their search for new sources of uncorrelated return within their diversified funds.

“The average multi-manager growth fund now has a 9.2% allocation to alternatives, which is generally funded half from growth assets, half from defensive assets,” observed Fuller.

“The most commonly used alternatives include hedge funds, commodities and infrastructure.”

IMPORTANT NOTICE: The following relate to this document published by Lonsec Limited ABN 56 061 751 102 (“Lonsec”) and should be read before making any investment decision about the product(s).

Disclosure at the date of publication: Lonsec receive a fee from the fund manager for rating the product(s) using comprehensive and objective criteria. Lonsec‟s fee is not linked to the rating outcome. Lonsec does not hold the product(s) referred to in this document. Lonsec‟s representatives and/or their associates may hold the product(s) referred to in this document, but detail of these holdings are not known to the Analyst(s).

Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to “General Advice” and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs („financial circumstances‟) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek further advice on its appropriateness. If our General Advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Product Disclosure Statement for each financial product before making any decision about whether to acquire a product.

Disclaimer: This document is for the exclusive use of the person to whom it is provided by Lonsec and must not be used or relied upon by any other person. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by Lonsec. Conclusions, ratings and advice are reasonably held at the time of completion but subject to change without notice. Lonsec assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, Lonsec, its directors, employees and agents disclaim all liability for any error or inaccuracy in, or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

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