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Created on 30.10.2019

Invest in funds using the multi-manager approach

Over the last ten years, “multi-manager strategies” have enjoyed a veritable boom. Multi-manager fund products allow private and institutional investors to diversify even more broadly than with conventional funds. They distribute fund assets across several fund managers. But when does it make sense to invest in these sorts of products? And what should investors bear in mind about this approach? You can find answers to all these questions here.

When the multi-manager approach makes sense

In asset management, the term “multi-management” refers to the strategy of distributing capital across various fund managers who work within an asset class with different investment styles or cover different company sizes, countries, industries or asset categories. This strategy can help compile a diversified investment portfolio. The risk of loss associated with poor decision-making by a manager is therefore kept to a minimum, as the other managers can compensate for this with their own activities.

What investors need to bear in mind

The multi-manager approach comes with benefits for investors. Asset managers make investment decisions based on the expectations they have of the specific area that is assigned to them. This way, their expertise can be used effectively. The ultimate aim, in addition to a more diversified portfolio, is to achieve a more consistent performance.

It is important to note, however, that if this approach is adopted, investments can sometimes entail higher fees, as investment decisions are made by several managers.

How the multi-manager approach works when it comes to funds: the image shows a pie chart made up of different fund components that are labelled as follows: bonds, money market, Swiss shares, US shares, emerging market shares. Each component is also marked in a different colour. These colours are all listed in the key for the chart and are labelled “Manager 1”, “Manager 2”, “Manager 3”, “Manager 4” and “Manager 5”. In other words, the pie chart shows that a multi-manager fund involves different managers managing different fund components.

Exception: fund of funds

The multi-manager approach does not only include funds that are managed by several managers. As is the case for a fund of funds, it may also include funds that invest in other investment funds (“target funds”). In contrast to funds that are composed of individual shares, bonds or other securities, a fund of funds comprises various funds, each of which has its own manager.

A fund manager can use a fund of funds to occupy a given market segment with the most attractive fund for that segment. This means virtually any yield-risk profile can be represented. The fund of funds therefore enables active asset management through broad diversification, which means a greater distribution of risk. The disadvantage of fund of funds products of this kind is that they often entail higher costs. In the case of a fund of funds where the product selection is restricted to the company’s own funds (“fettered funds”), the costs tend to be lower than for a fund of funds that has a broader selection (“unfettered” funds).

An exciting alternative for investors

The multi-manager approach is suitable for investors looking to diversify their portfolio even further and who wish to benefit from the expertise of several fund managers. In efficient markets, the most promising options are primarily index products and passively managed investments. An exciting alternative investment option is multi-manager fund products, especially in markets that are not entirely efficient.

In Switzerland, companies such as PostFinance offer investors various funds with a multi-manager approach. Funds such as The link will open in a new window PF - ESG Yield Strategy Fund (securities no. 686’921), The link will open in a new window PF - ESG Income Strategy Fund (securities no. 686’923), The link will open in a new window PF - ESG Balanced Strategy Fund (securities no. 730’438) and The link will open in a new window PF - ESG Growth Strategy Fund (securities no. 730’568) rely on several specialized fund managers for international shares.

You can find an overview of all of funds from PostFinance by clicking on the following link.

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