Are you confident your investment manager will deliver?

We’ve just concluded our latest assessment of multi-asset providers and their offerings, with around one-third of managers achieving our highest rating. We’ve included some highlights below, but we’d be very happy to talk to you about how your manager measures up.

Multi-asset makeover: the evolution of multi-asset investing

Diversified growth funds (DGFs) were once the pinnacle of multi-asset investment – they saved investors time and governance by providing a one-stop shop for a portfolio (or a key component of an investor’s growth engine). As a result, money poured in over the early 2010s and the market grew. This continued until performance began to struggle relative to equity markets, which led to the trend starting to reverse.

Multi-asset mandates, however, still play a central role in many portfolios – whether this is alongside a hedging strategy for pension schemes, other specific 'satellite' assets, or forming an entire portfolio, depending on governance budget and needs.

Cue the rise of 'discretionary growth mandates'. These bring the governance advantages similar to a DGF (working with a single implementation manager), but the key difference is that you can now access something tailored to reflect your specific exclusions, beliefs and constraints, as well as having flexibility to specify your return target and structural make-up.

This concept is not new. Different types of investors have historically been serviced by a range of managers – fiduciary management (FM), outsourced chief investment officer (OCIO), discretionary management, or simply wealth management. What’s changed is that managers are increasingly looking to move between territories – for example, pension schemes, endowments and foundations, insurers, and wealth.

This leads to more choice, which may mean your current manager is no longer the best fit for your needs.

Inside our review: investment managers promise performance – but how do they achieve it?

To help you compare the options, we assessed more than 20 discretionary growth managers using our in-depth manager research process. This combined quantitative and qualitative analysis and involved face-to-face meetings with key investment decision-makers. The process culminated in a suite of more than 15 ratings per manager – covering areas such as approach to downside protection, reliance on macroeconomic conditions, research coverage and portfolio concentration, and ultimately whether we had conviction in their ability to achieve their objectives.

But why should you care?

This data enables us to benchmark your investment manager relative to the wider market. We can help you understand what you are getting from your manager; whether they are good at providing this; how this compares with what their peers offer; and whether their fees are competitive.

What’s different to other performance reviews?

We can complement backward-looking performance assessments with forward-looking manager assessments. That means we can help you assess whether your manager has added value in the past, but more importantly, whether they remain fit for purpose for your needs in future.

We put discretionary growth providers to the test – here’s what stood out

A few highlights have made it into this blog, but the real value comes from seeing how your investment manager stacks up against the wider industry – get in touch if you’d like to know more.

Stewardship: do you know what your manager is doing on your behalf?

Sustainability remains a priority for many investors, but it can be hard to see through the marketing to understand whether real value is being added.

We rate around two-thirds of managers 'High Conviction' (our top rating) for sustainability. We found most managers have strong research capabilities in this area, and many can integrate sustainability views into a portfolio.

Perhaps most interesting, though, is that stewardship remains a key differentiator. Only around one-third of managers achieved a High Conviction rating for stewardship. Investors need to know whether their managers are being effective stewards of underlying investments to enact real change, or whether this remains secondary to marketing. Do you know what your manager is doing on your behalf?

More research does not automatically lead to better returns

Managers with greater research coverage often open the door to a wider range of assets. Our findings suggest large consultancy-based firms, alongside large global asset managers, typically use their size and scale to offer a broader set of underlying asset classes. By contrast, those with smaller research resource may be more constrained in what they can invest in.

Importantly, more resource does not necessarily lead to better outcomes – it’s important to understand what your needs are, and whether your manager can meet them.

Defence vs offence: do you need a higher return?

Overall, we found that discretionary growth managers have a slight defensive bias. This may suit the majority of investors, but if you need higher returns and can withstand more volatility, you need to find the right manager to deliver this. Picking the right manager (or at least avoiding the wrong ones) is key.

A higher fee doesn’t mean better performance – do you know what you’re paying for?

Our review did not show a clear link between fees and performance (whether measured by lower volatility or higher returns). At the extremes, managers with lower fees typically have more simplified portfolios, but this is not always the case.

The market has moved on and there is now much greater choice – you don’t need to settle for your current manager or their historic fees.

Where does your investment manager fit into all of this?

As multi-asset investing continues to develop, you may find you have more options than when you last reviewed your managers. The increasing complexity and flexibility give you more choice, but can make it harder to filter out the noise – the 'paradox of choice'.

We are increasingly finding that our work with clients starts with a backward-looking performance assessment, but that more value comes when we consider the forward-looking piece – a good example of this can be seen in our recent case study.

Get in touch if you’d like to understand how you can benchmark your manager and ensure they remain fit for purpose.

Jenny Armson, Senior Investment Client Manager, contributed to this blog.