How can multi-manager funds cushion against volatility?

Justin Oliver, investment director at Collins Stewart Wealth Management, explains why a multi-manager approach to investing can benefit your clients in a volatile environment.

At this time of the year when the long hazy summer evenings, permeated with the tantalising smell of barbeques infused with a certain ‘Joie de Vivre’ become a distant memory and Europeans return to their workplaces, thoughts normally return to the markets, well, that is how it’s supposed to be.

Instead, financial markets have been in freefall, political crises have engulfed the US, Europe and the Middle-East while, regrettably, in parts of the UK the sensory allure of seared steak has been overwhelmed by the blare of police sirens, the sounds of breaking glass and a far less appealing burning fragrance.

Whatever the exact opposite of ‘Joie de Vivre’ may be, it is clear that the prevailing mood is distinctly sombre.

While it may be unrealistic to expect the clouds of gloom to suddenly part and the halcyon days of high summer to emerge, there are at least some reasons to hope that the shadows are lifting.

Growth in healthcare

Even in a challenging environment there will be sectors with the ability to perform and currently healthcare is a core example, offering as it does tangible growth potential on the basis of irrefutable demographic changes, together with defensive attributes supported by a long term undervaluation.

Finding these sector views plays into a multi-manager process, it highlights the need for both qualitative research and pure statistical analysis.

However, it is vital to first understand a fund manager’s investment philosophy, process and positioning, before making a judgement in terms of whether past performance is sustainable in the future.

It is important that a multi-manager has a strong and developed relationship with fund managers, it is inevitable that more time is spent discussing the third of the ‘3 Ps’ (positioning) than recapping process and philosophy.

In this regard, it is worth examining what to do, and what not to do, when discussing with the fund manager their view on the global investment environment and how they have positioned their fund accordingly.

Investing in the right company

First, it is important to realise that not all fund managers have a view of the world; indeed some actively try to ensure that they are as un-opinionated as possible in terms of the ‘big picture’ in the belief that no-one can consistently and accurately predict macro developments.