Is it a sensible idea to use 1 multi manager fund?

bowlhead99

The practical problem with building up a portfolio of single sector funds when your 400k is in 4 separate pots, is that you can't just have 10+ funds of say £20-60k each and rebalance them from time to time. Because the walls of the various pots make it difficult to move money around as needed. And then as you say it would seem like a lot of funds because you could end up with 40-50 separate chunks even if only 10+ funds being used in total.

However, it's not necessarily an impossibility because fund admin /platform fees may not care about the total number of holdings or number of transactions. And you might find you have slightly different objectives for a couple of the pots anyway, justifying different mixes.

I could see that 4 big mixed asset funds, or funds-of-funds, could do the job of the 10+ specialist funds to cover the 400k, if it were all in one pot. Potentially in your 4-pots environment you could get away with one or two mixed asset funds per pot, though having more would feel like more control.

More control might not necessarily be required though, especially on a smaller, sub £100k pot.

bowlhead99

balooney2000 wrote: »

Our understanding was the FSCS is per fund - so if a fund of funds is made up of 8 funds for example that would be £50 per fund in the fund of funds ie £400,000 - or have we got that completely wrong?

Happy to be corrected but I assumed that going through a platform to a fund of funds to underlying investee funds below that, you wouldn't get a full look-through of protection from the 8 underlying managers... as you are not the direct customer of those 8 managers. Only your FoF fund is the customer of the downstream investee funds , and the FoF fund is a professional counterparty rather than a retail customer of the underlying fund, so does not get consumer protection if it goes titsup?

Clearly your IFA and fund platform are just intermediaries looking after your money as they help you put it into the FoF, so you get FSCS protection from each of them, and from the FoF, when you have an investment with Balooney2000 as beneficial owner, of some shares of the FoF.

But once into the FoF layer, the shareholding of the investee fund X or investee fund Y is not in the name of "FoF Manager on behalf of balooney2000" ; it's in the name of "FoF Manager on behalf of the FoF Fund."

AnotherJoe

balooney2000 wrote: »

Our understanding was the FSCS is per fund - so if a fund of funds is made up of 8 funds for example that would be £50 per fund in the fund of funds ie £400,000 - or have we got that completely wrong?

I very much doubt that and think its very likely you have it wrong.The fund components,eg other funds, as said arent in your name, there is no real traceability from you to them.

I'd be very confident it was strictly the 'top level' fund.

AnotherJoe

dunstonh wrote: »

You know from my history of posting that I advocate sector allocation. However, from a historical risk point of view, UK equity is considered lower risk due to currency fluctuations not being an issue. It is easy to argue that in 2016, that viewpoint is out of date as these things are priced on a global stage and a lot of UK equity includes companies with overseas incomes.

Uncertainty is one I do not agree with. Markets have always lived with uncertainty and uncertainty can lead to gains as well as losses. And with UK companies generally cheaper to buy now if you are an outside predator, this could be a very good time to have UK equity. So, the usual swings and roundabouts applies.

To me its less the currency issue and more the 'one economy" issue that raises risk. If Brexit turns out to be a real disaster and the economy tanks, having all your shares (and half as much again in interest bearing instruments all in sterling) doesn't sound 'low risk' to me. OK so its the same currency as you spend in, but inflation lowers the value of that, and if UK companies are doing badly its a double whammy.

Yes UK companies may become a good buy, but if they arent doing well, I doubt that compensates, foreign investors will likely buy Mayfair flats instead of say Rolls Royce shares..

dunstonh

Our understanding was the FSCS is per fund - so if a fund of funds is made up of 8 funds for example that would be £50 per fund in the fund of funds ie £400,000 - or have we got that completely wrong?

With a unfettered fund of funds, you do not get any FSCS protection on the underlying investment funds. It is just like fund holding shares. You get the £50k FSCS protection on the holding fund only.

The £50k limit is per fund house. Not per fund.

If you use an IFA, you get higher protection if the IFA was found to be responsible for poor advice (and most fund failures do seem to find advisers responsible). The limit on that is £150k (maximum FOS that can be awarded. It is possible to get more but it is voluntary above that). If you DIY you dont get that.

bottleandahalf

dunstonh wrote: »

In which case no. With £400k, you would expect either a bespoke portfolio of funds (10 or so funds with one fund in each investment area) or a selection of multi-asset funds. Not just one.

£40k would be fine in one fund. Even 80k. Not £400k. Some could argue that some multi-asset funds could be ok as a single fund but personally, I would not.

So starting out, it is wise to build up about 40k in a multi asset fund before adding others?

dunstonh

bottleandahalf wrote: »

So starting out, it is wise to build up about 40k in a multi asset fund before adding others?

Yes. We dont utilise bespoke portfolios for people under £100k now. You may have a different level but it depends on the level of work you wish to do and whether it is worthwhile. e.g. say you Japanese equity allocation was 3%. At 40k that is just £1200. If you are going to research around 10 funds and the figures may be as low as that, is it really worth the time and effort when a multi-asset fund can do it for you. Yes, its a bit more expensive but at that level, its not a lot.

racey

dunstonh wrote: »

Yes. We dont utilise bespoke portfolios for people under £100k now. You may have a different level but it depends on the level of work you wish to do and whether it is worthwhile. e.g. say you Japanese equity allocation was 3%. At 40k that is just £1200. If you are going to research around 10 funds and the figures may be as low as that, is it really worth the time and effort when a multi-asset fund can do it for you. Yes, its a bit more expensive but at that level, its not a lot.

Would a Vanguard Lifestrategy fund be suitable here?

dunstonh

racey wrote: »

Would a Vanguard Lifestrategy fund be suitable here?

It is one of the options.

racey

dunstonh wrote: »

It is one of the options.

Thanks.

You made a good point above regarding taking ages considering portfolio allocations, deciding on 3% for Japan, and buying a suitable fund as part of a £100k portfolio. All that effort for a £3k fund. Unless you really enjoy doing all that research, it seems to be far easier to use a multi-asset fund put together by experts.
I think I was heading towards that conclusion myself. You've helped me get there a bit quicker and saved me producing even more spreadsheets. :T