A multi-manager approach involves pooling funds from investors to allocate them across a range of investment managers with different expertise and strategies. This method aims to diversify not only across asset classes but also across management styles and philosophies, in the hope of mitigating risk and enhancing returns. Each manager selected for a multi-manager fund is chosen for their specialised skills in particular markets or types of investments, such as equities, bonds or alternative assets. By employing multiple managers, the fund seeks to benefit from the varied approaches and market views, potentially smoothing out volatility and improving the risk-return profile of the investment.
The appeal of a multi-manager approach lies in its potential to offer investors a more robust diversification strategy. Unlike traditional funds, where a single manager or management team makes all investment decisions, multi-manager funds spread their investments across several managers, each responsible for a segment of the fund's portfolio. This strategy can reduce the impact of any single manager's underperformance on the overall fund. Additionally, it allows investors access to a broader range of investment opportunities and management talent than might be available through investing in a single manager fund.
However, the multi-manager approach also involves certain considerations, such as higher costs. The layering of management fees — fees paid to the primary fund manager and additional fees for the underlying managers — can erode net returns. Therefore, it's crucial for investors to weigh the potential benefits of diversification and access to specialised managers against the increased expense ratios. Despite the higher costs, for many investors, the multi-manager approach represents a compelling way to achieve diversification and access to top-tier management talent across different asset classes and investment styles.
This Trustnet Learn article was written with assistance from artificial intelligence (AI). For more information, please visit our AI Statement.