Multi-Manager Mutual Funds

I am a Money Magnet! We are Money Magnets!

In this article, author Julian P. Tarrobago Jr., Vice President and Equity Portfolio Manager for international equities at ATR KimEng Asset Management, wrote about the evolution of Mutual Funds from being managed by only one manager in to something that is with multiple managers.  He compared fund management with Mix Martial Arts and gave examples of how Mix Martial Artists recognize that one style is not enough to win against the varying styles of different opponents.  In the same way, he said that mutual funds that are managed by a single fund manager will not be able to outperform everybody every single year because everyone is prone to have bad days.  While, according to him, a multi-manager fund will allow investors access to "the best fund manager/strategy at the appropriate time."  In essence, he wrote that multi-manager funds will "allow fund holders to become complete investors - by gaining access to different strategies to best (a) preserve capital in falling markets and (b) to maximize gains in rising markets."

I guess this can be summed up with a famous saying we've known since childhood and that is "Two heads are better than one."  In this case however, maybe we can say that "Multiple heads are better than one." (^o^)/

I was intrigued and so I personally emailed Mr. Tarrobago to inquire more about multi-manager funds.  Read about our correspondence after reading the article.

Bull Session
by: Julian P. Tarrobago Jr.

UNORTHODOX striker Jon “Bones” Jones recently beat down legendary Brazilian Chute Boxe fighter Mauricio “Shogun” Rua, making Bones the youngest Ultimate Fighting Champion (UFC) at 23 years old. This is a big deal, not just because Bones and I share the same birthday on July 19th, but also it massively shifts the balance of power to the young guns in the UFC light heavyweight division. It also unleashes an exciting new era in the evolution of the world’s fastest-growing sport called mixed martial arts or MMA.
MMA was invented to enable the best martial artists from all over the world to compete against each other and, ultimately, determine which discipline was the best. In 1993, the first UFC (MMA’s biggest promotion) saw an undersized Brazilian jiu-jitsu black belter named Royce Gracie beat stronger and faster opponents, en route to winning the tournament. Jiu-jitsu, loosely called grappling or ground fighting, dominated the formative years of MMA (i.e. UFC in the US and Pride FC in Japan), occasionally sharing the spotlight with practitioners of wrestling and muay Thai. MMA legends were formed, immortalized in the blood and sweat of champions named Rickson, Couture, Emelianenko and Nogueira.
The great champions of old, however, may be no match for the best modern-day mixed martial artists—bannered by superstars with aliases such as GSP (St. Pierre), Spider (Silva), the Prodigy (Penn), Scarface (Aldo) and the Demolition Man (Overeem). These warriors recognize that one style will not work in all competitions on a consistent basis—triggering an obsession, planning and exhaustive training regimen focused on becoming “the complete fighter” by striving to master all major areas (i.e. striking, wrestling, grappling) of physical warfare.
This has spawned our own talented breed of Filipino MMA fighters in the UFC (i.e. Vera, Muñoz and Nover) and in the local Universal Reality Combat Championships. Hence, it’s not overly surprising to hear that The Ultimate Fighter Philippines will actually spearhead the long-running US reality show’s overseas expansion this year—ahead of MMA powerhouses Brazil, Canada and the United Kingdom.
In the Philippine investments landscape, a strikingly similar evolution is taking place. The arrival of multi-manager funds now allows fund holders here to become complete investors—by gaining access to different strategies to best: (a) preserve capital in falling markets and (b) to maximize gains in rising markets. In this pursuit, the multi-manager selects and blends specialized funds of a wide range of different asset managers to generate hefty returns and to reduce risk. In other words, investors are not locked into a single strategy, if fundamentals or market conditions demand otherwise.
This is important because no single fund manager has ever been successful in all markets and no single fund has outperformed all other funds at all times.
Even the fund management gods—such as Warren Buffet (Berkshire Hathaway), Peter Lynch (Fidelity Magellan) and Bill Gross (Pimco) did not outperform everybody every single year. They too had bad years. The reason is that different investment styles (i.e. growth, value) perform well in different parts of the investment cycle. A multi-manager fund allows the investor access to the best fund manager/strategy at the appropriate time. Its implied access and flexibility is more obvious in times of rapidly changing equity markets, when investors of equity funds typically deal with periods of inferior returns and high volatility over the course of the cycle.
The fund of funds approach can be effective for seizing investment opportunities in Asian and emerging market equities. Multi-managers maximize profits and contain risk by switching to either a growth, blended or value-oriented strategy—to match specific stages in the investment cycle.  The manager can also effectively gain exposure to the strongest global investment themes (i.e. China consumer, China banks, Indian infrastructure) by investing in selected “best of breed” country, sector or thematic funds.
When choosing your multi-manager fund, ask about the investment process. Their due diligence should involve interviewing the different fund managers to gain a decent understanding of a fund’s investment process, style, and biases.
These help simplify fund picking for investors, with the increasing complexity of investing and the search for the right funds easily becoming a full-time task.  By screening out funds with inferior risk, returns and risk-adjusted performance, investors are spared most of the fund selection burden. Meanwhile, the multi-manager’s relationships with the fund managers in their universe also reduce the overall costs of investing, translating to lower entry costs and institutional investor benefits (i.e. access to portfolio holdings, fund manager research) for smaller investors.
In sum, multi-manager funds have recently been made available in the Philippines (via mutual funds) and are slowly gaining popularity.  Like the modern MMA fighter, they focus on wisdom, expertise, and flexibility to quickly and effectively employ strategies tailored to changes-- in any opponent, situation, or investment cycle.

In my email to Mr. Tarrabago I asked him how this was made possible in Mutual Funds and if he can give me an example.  He replied that a multi-manager mutual fund can either be in fixed income or in equity-based funds.  He said that Equity funds can effectively manage risk by actively managing cash positions relative to the funds exposure, outlook, and strategy.  He gave as an example, ATR KimEng Asset Management's ATRKE AsiaPlus Recovery Fund , a mutual fund that invests in Asian equities, as one such fund.  He personally manages the fund and according to his recollection, it is the first multi-manager mutual fund in the Philippines.

In the next few days, I will definitely be asking more about this fund and also asking the managers of mutual funds that I own whether they are multi-manager funds or not.  

A note of caution to all Money Magnets out there however, I would just like to point out that being a multi-manager fund does not guarantee that that fund will outperform mutual funds that are not multi-manager funds.  What's still important is how the fund managers work together as a team to come up with the best strategy to maximize returns.  In fact one can also argue that with more fund managers involved in a single fund, the fund's strategy and returns can be greatly compromised as well especially when these fund managers have conflicting views.    

Get your free email updates.  Subscribe here.

Related Posts Plugin for WordPress, Blogger...

Related Articles: