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Company Listing: STANLIB Wealth Management Limited »

INVESTMENT advisers who guided clients into multi-manager unit trusts as a way of cushioning downside risk can breathe easier. The first test in three years of multi-management’s ability to control market volatility has confirmed the value of the concept. That’s the appraisal of Malcolm Holmes, Chief Investment Officer of STANLIB Multi-Manager, following recent equity market fluctuations that at one stage wiped 16% off JSE equity valuations and more so off listed property prices. STANLIB’s multi-management business runs 9 funds containing more than R6.4 billion in assets. The recent market retreat was bad news for investors, but a good reminder of the defensive properties of multi-management. Years of market strength meant multi-manager funds had no chance to demonstrate their built-in safety net. “Investing is about risk and return and too often, in constructing their own portfolios, investors forget about the risk they have taken to enjoy the returns they have received. Riskier assets get hit the hardest when markets turn. “In response to a classic risk event – the further increase in US interest rates on May 10 and subsequent, but unexpected increase in local rates – markets have sold off. The increase in volatility serves as a good reminder that risks are ever present and that on-going risk management is vitally important in portfolio construction.” By diversifying allocations across several managers – each with good claim to be a specialist in a particular niche – an element of downside protection is achieved without sacrificing upside participation once the market turns. “Specialist manager selection and enhanced portfolio diversification generally leads to better than average performance when markets firm, with better than average protection when markets falter,” says Holmes. To illustrate the point, Holmes pointed to the recent improvement in the rankings of several pure multi-managed funds in their respective categories. “Our equity, bond and income offerings have all improved their short-term rankings by several positions. “Not only does there appear to be a cushioning effect in negative markets, but ranking volatility is typically lower than other predominantly single manager alternatives. The funds that took on more risk and benefited in the upswing are generally the ones that rank near the bottom when markets suddenly turn negative. Obviously there are exceptions to the rule.” Holmes adds: “To use a cricketing analogy, the safest hands for high catches are (generally) those wearing the wicket-keeping gloves. With big gloves, you have more protection and cushioning, greater certainty and less chance of dropping the ball. Through enhanced diversification and an optimal combination of specialist views, the multi-manager is typically the keeper in the sector. “ Whilst in absolute terms multi-manager funds have not been unscathed as markets have dropped, relatively speaking it appears that those advisers who recommended a safe pair of multi-management hands have at least something to smile about.