Multi-manager basics

Different investment managers have different skills, and specialise in different investment areas.  No single manager can hope to be the best in all areas in all market cycles.

The multi-manager approach uses the combined skills of two or more specialist asset managers to manage various assets within a single portfolio.

To find the right combinations of managers and construct portfolios under ever changing financial market scenarios requires specific expertise and knowledge. Sanlam Multi-Manager International specialises in this area. The orchestration of all these different people and factors is our key competitive advantage.

Diversification

Most investors are well aware of the principle of diversifying their assets in order to counter the effects of under-performance in any one sector - particularly over the short to medium term.  The idea of manager diversification is less well known.  Following is the rationale behind the need to diversify both your assets, as well as the managers of those assets.

 

Asset diversification

Asset classes perform differently in different market cycles.  To take an obvious example, property and bond funds tend to do well when interest rates decline, while money market funds perform better when interest rates rise.

Most common investor mistakes

Mistake #1:

Assuming that past performance drives future returns. Just because property has delivered high returns for a period of time doesn't guarantee similar returns going forward.

Mistake #2:

Assuming the recent good performance of a certain sector will continue, investors place all their eggs in the same basket. This mistake often goes hand in hand with mistake #1.

Mistake #3:

Investors assume they will be able to move their money out at the top of the cycle. The problem is that very often they're buying at the top, because by the time these excellent returns reach the ears of end investor (normally via the media) all the good news has been priced into the market.

Fortunately there is an easy way to avoid all of this.  By diversifying your portfolio across asset classes, you decrease your dependence on the performance of one asset type on its own and can look forward to more consistent returns.

 

Manager  diversification

The same principle that applies to asset classes seems to apply equally well to fund managers. It is highly unlikely that any one manager will deliver top quartile annual performance over the longer term with any consistency.  This is largely because managers follow different investment styles, which work better in some market cycles than others.  SMMI's approach of actively combining different managers gives you access to different investment processes and styles.

This ensures that managers do only what they're good at, leaving different niche professionals to focus on the other segments of your portfolio as appropriate. The result is better and more consistent returns in the long run.