Global multi-managers outshine locals

Multi managers offered mixed performance in 2005 with growth multi-managers and those in global equities achieving strong results, while multi-managers in the Australian equities sector struggled and, on average, under-performed relative to single managers.

The latest Lonsec report on the sector also found multi managers are opting for active, style neutral approaches to portfolio construction, are blending quantitative and qualitative analysis, and are generally static in their asset allocation, favouring traditional asset classes, although exposure to alternative investments has increased.

Lonsec general manager of research Grant Kennaway said multi-managers were also taking a much clearer stance on whether or not they would use alternative investments such as hedge funds and infrastructure compared with the 2004 review.

“We were pleased to see clear evolution in regards to strategic asset allocation with the adoption of global property and hedge funds by a number of our rated managers.”

Capacity continued to be a critical issue for the sector.

“As the sector has been receiving strong positive inflows and a number of underlying managers included in the structures are closed, or are reaching capacity, multi-managers have been working hard to source new and/or additional managers to add to their structures, particularly within Australian equities,” Kennaway said.

As part of the sector review, Lonsec rated 13 individual managers. Only Russell achieved a ‘highly recommended’ rating, while seven managers were ‘recommended’ and five were considered ‘investment grade’.

Kennaway said Lonsec was pleased with the quality of the four managers that were rated for the first time, including Mercer Global Investments (MGI), which achieved a ‘recommended’ rating, and AMP, Navigator and Challenger, which were rated ‘investment grade’.

“MGI was the pick of the new managers, Navigator Pre-Select, AMP Future Directions and the Challenger Custom Choice funds managed by QIC have transparent investment styles and clearly defined fund objectives,” he said.

Kennaway said while Russell was the only manager to receive the highest rating, primarily due to the size and experience of its research team and the fact that it had staff “on the ground” to assess offshore managers, other managers had shown improvement.

“A number of the ‘recommended’ managers pressed for an upgraded rating. Optimix, Intech, MLC and Skandia continue to provide strong offerings in the multi-manager space,” he said.