Any investor or adviser who thinks that the recently experienced levels of volatility are a temporary phenomenon in the equity markets needs to take a very careful look at where they are invested.
The short-term gyrations in valuations reflect rapidly changing global markets and are in my view here to stay and must be taken into account when planning and reviewing fund selection for a portfolio. This may sound to many as an obvious statement but I believe it to be a very timely reminder that it is becoming increasingly more challenging to determine quality investment opportunities in the retail collective space.
It has become clear that many investors have been doing just this - but in the process they may well have been jumping out of the frying pan and into the fire by chasing after multi-manager fund performance or taking a completely different tack and moving away from actively managed funds and hoping to weather the storm by seeking shelter in passive funds. It is not that long ago that we saw another wave of investor movements when many people were moving to cash - and in the process missing out on sharp flex points of recovery and rebounds in the markets.
The first challenge for an adviser and/or investor is to get to grips with multi-manager funds (including fund of funds and manager of manager) and evaluate if they really are offering and delivering returns above and beyond those being delivered by active single manager funds. Much is made about layers of charges within the cost structure of a retail multi-manager fund and to be fair, if a fund can outperform the competition and produce returns above the line, then there may indeed be a case to justify higher ongoing charges. I have never subscribed to the view that charges are the be-all and end-all but rather that they should simply be taken into account with all other factors when researching a fund for a client portfolio.
So what has happened in the multi-manager space during the period of continuing volatility in the markets?
Looking for a moment at the 0 per cent to 20 per cent shares sector, not surprisingly top of the shop over one year up to 14 May 2012 is Kames inflation-linked fund up 21.2 per cent - heavily exposed to UK gilts. This may indeed look pretty good compared with the other string sectors over one year property up 12.3 per cent and absolute return 11.0 per cent but with no longer track record for the fund then this is simply short-term return and little or nothing can be drawn from this in terms of truly evaluating the fund, other than it is very much in line with the UK inflation gilt sector over the period. While it is of course reassuring for those clients invested in the fund to see these numbers, the rationale for investing in funds with track records shorter than five years is for me unconvincing.
