Fortunes turn for single-manager diversified funds

Single-manager diversified funds have outperformed their multi-manager peers over the past year, according to Lonsec’s latest review of the sector, with singularly managed funds using tactical asset allocation strategies to their advantage during a challenging period.

This represented a “reversal of fortunes” for single-manager diversified funds, which in 2008 saw more competition from multi-manager diversified funds, according to Lonsec’s 2009 Diversified Sector Review.

In 2009 investors have seen the benefits offered by specialist diversified managers, particularly in the areas of asset allocation and risk management, Lonsec said, with single-manager diversified funds outperforming their multi-manager peers by more than 4 per cent to the year to June 2009. These returns were also achieved with lower levels of risk than their equivalent multi-manager funds, the report stated.

The research house said the latest survey raised the question of whether multi-manager funds have been diversifying the wrong risk.

“While multi-manager structures diversify risk across managers, the vast majority do not employ tactical asset allocation,” Lonsec said.

Single-manager diversified funds, however, do employ tactical asset allocation, and their “ability to underweight equity market exposures during the global financial crisis led to a significant outperformance”.

Over the last year the Lonsec Fund Sector Average returned -11.3 per cent compared to -14.4 per cent for the benchmark, the Morningstar Multi-Sector Growth Index. Lonsec described the average return for the five years to June 2009 as “disappointing” at 3.8 per cent per annum, “well below the cash rate return of 6.1 per cent over the same period”.

Despite this, significant capital remains invested in diversified funds, with Lonsec-assessed managers holding more than $31 billion at the end of last year.

ING accounted for almost half of the sector’s funds under management with $13.9 billion. ING was also the poorest performer in its peer group, returning -16.6 over the past year. The manager has lagged its peers in both the short and long term, the research house said.

The best performer over the past 12 months was newly-included Maple Brown Abbott at -8 per cent. BlackRock was named the best performer over five years, while Zurich has also been a consistent performer, Lonsec said.

Of the 12 managers assessed in the review, BlackRock was the only manager to attain a ‘highly recommended’ rating. The MapleBrown Abbott Diversified Investment Trust was included in the review for the first time and received a ‘recommended’ rating.

Aberdeen was not formally included in the report due to the purchase of the Credit Suisse funds, with the Credit Suisse/Aberdeen funds placed on ‘fund watch’ while Lonsec monitors developments. UBS Diversified Funds was downgraded from ‘recommended’ to ‘fund watch’ following the departure of portfolio manager Michael Karagianis, who Lonsec said was a key driver of the fund.