The reason why a multi-manager company chooses different fund managers is because of their skill in a particular investment type.  Multi-managers therefore aim to pick the best funds by investing clients’ money with those investment houses most likely to achieve investment goals, thereby taking the fund-picking dilemma out of the client’s hands. 

A good multi-manager will try to lower risk by choosing managers whose styles and investment processes complement each other. In a nutshell:

• Different managers have different skills

• No single manager can hope to be the best in all areas through all market cycles

• There are benefits in diversifying:

• asset classes, 

• investment managers,

• manager positioning,

• management style

• Manager choice, selection and timing is crucial

• Collective skills and information access are important for making better financial market decisions.

The alpha factor

 

What is alpha?

Broadly speaking it is outperformance relative to an investment benchmark, a group of peers, or both.  Alpha generation in portfolios is one of the primary objectives of any asset manager. As a multi-manager, one of our challenges is to understand how different managers generate alpha in portfolios.

Typical examples of alpha generating tools in single manager portfolios are:

 

• security selection and sector rotation in an equity portfolio or

• duration and credit bets in a bond portfolio. 

SMMI's strategic multi-manager approach generates alpha jointly and separately through

 

•  Active asset allocation

• Manager selection

• Combination analysis




Alpha factor #1:
Active asset allocation
Much like single managers, multi-managers can generate alpha by taking active asset allocation positions around strategic long term benchmarks. These active asset allocation decisions are based on in-house views generated from thorough fundamental analysis. These active positions are by no means trivial.  At times they can be as high as 15%. The graphic below illustrates an example of SMMI’s active asset allocation positions in one of our portfolios.