In 2022, Covid-19 restrictions eased across the globe and there was a renewed sense that normalcy would again prevail. But then Russia invaded Ukraine, putting pressure on global financial markets for the rest of the year, which had a knock-on effect locally. This impacted our market performance, inflation and interest rates.
The market consensus is that we are not out of the woods just yet, and that 2023 looks likely to be a bumpy ride, but our multi-manager investment approach is likely to ease the burden on the investor.
The importance of spreading investments to manage risk
Geopolitical tensions, faltering global growth and rising inflation, to name a few, all have an impact on the value of your investments. While we can’t eliminate the risks brought about by market uncertainty, the good news is that we can manage them through diversification and our multi-manager investment approach.
Diversification – the allocation of assets into various investment instruments, such as equities, property and cash, currencies and regions – can help reduce the overall investment risk of a portfolio and help smooth short-term market fluctuations. Just as diversification can be applied to asset classes, sectors, currencies and regions, so too can it be applied at the asset manager level.
The case for multi-management
Multi-management is an investment approach that consists of combining several asset managers across different markets, asset classes, investment philosophies and styles of money management to help reduce risk and enhance investment returns. It offers investors several potential benefits that can contribute toward better investment outcomes:
Diversification: Multi-management provides an additional layer of diversification by allowing investors to benefit from the expertise of several complementary asset managers. It helps produce more consistent, less volatile (smoother) return streams over time, irrespective of market or economic conditions.
Managing expectations and comfort levels: The consistent and smoother returns streams offered by multi-management can help to mitigate emotional responses to market volatility, because investors have more confidence that their savings are well-diversified, even in challenging market conditions. This helps investors minimise their behavioural biases that often lead to sub-optimal investment decisions, as well as keep them appropriately invested throughout market cycles to enhance their chances of meeting their investment goals.
Superior long-term performance: The smoother, more consistent return streams generated by an optimally blended multi-managed portfolio are more likely to compound into superior performance over time, meaningfully outperforming the market.
Responsiveness: By deploying different asset classes, investment strategies and asset managers at different times, multi-management can offer flexibility to quickly modify and enhance underlying investment line-ups to protect against inherent risks or take advantage of emerging growth opportunities. Moreover, multi-managers are typically able to invest at scale, allowing investors to access new and niche investment opportunities and strategies previously unavailable, too costly or just too complex for them to readily access on their own.
Governance and oversight: Over and above providing an added layer of diversification, multi-management can provide other invaluable services to investors such as investment administration, reporting and compliance. These services can help mitigate operational risk, which can potentially be costly to investors, and contribute to better outcomes for investors.
Summary
Multi-management has become increasingly popular among individuals, advisers, trustees and members of pension funds in recent years. This is not surprising since it offers investors several attractive benefits over other investment approaches, as well as advantages over single asset manager portfolios. Overall, multi-management can help secure better investment outcomes by offering investors the opportunity to access broader diversification benefits, top-rated asset managers and holistic investment oversight, all within one portfolio solution.
While multi-management sounds like a simple concept, the reality is that a lot of hard work goes on behind the scenes to build a well-diversified, multi-managed portfolio. To realise the full benefits of the multi-manager approach, choosing a provider with a well-thought-out process for identifying the right asset managers and a demonstrable capability of blending them together is key.
Speak to your Alexforbes consultant to find out how our multi-managed approach can help make investing for members’ investment success simpler, smoother and safer.