The myriad of fund choice has led investors to managed solutions, with this month's Investment Management Association (IMA) statistics revealing that funds of funds are an increasingly popular investment choice.
IMA statistics for the third quarter of 2012 show that funds of funds accounted for a record level of funds under management. The figures showed that funds of funds held £67.5bn of investments at the end of the quarter, an 18 per cent rise on the same quarter last year and accounting for 10.7 per cent of total funds under management.
These funds are hugely popular as they save independent financial advisers the trouble of picking individual funds for their clients by allowing them to put this cash with one fund manager, who then spreads the money across a range of other funds and asset classes.
James Bateman, head of manager selection in Fidelity's Investment Solutions Group, comments: "Individual investors face myriad choices - from which asset classes, to which regions, to which fund managers, each of which takes substantial time, research and expertise. Many personal investors are therefore better served by investing in a single product that makes these decisions on an investor's behalf."
We've not been fans of the multi-manager approach at Investors Chronicle as we think that it is largely an opportunity for the funds industry to double up on investor fees. If you have a large portfolio then there is not much need to use a multi-manager as you have enough money to create a diversified portfolio for yourself.
However, we do think that the multi-manager approach can work well if you only have a small amount of money to invest in areas where you want broad diversification. There is also evidence that the approach works well (in terms of performance) in the investment trusts sphere. Funds of investment trusts are not well known among investors, but they can be a great way to enter the sector.
There are a few investment trusts that invest in other trusts, two of which have made it into our Top 100 funds list:
Advance Developing Markets (ADMF)
This is an investment trust that invests in other emerging markets investment trusts - so it is very highly diversified. Concentrating on asset allocation and outsourcing stock-picking has produced good returns. It is currently trading on an 11 per cent discount to net asset value, offering a good way into long-term growth in emerging markets. Its ongoing charges figure is 0.97 per cent. The downside to this trust is transparency - the last reported top 10 investments are from 31 August 2012.
http://www.advance-emerging.com
Performance of ADMF over various periods
| ADMF | Year to date* | 2011 | 2010 | 2009 | 2008 | 2007 |
|---|---|---|---|---|---|---|
| NAV | 7.49% | -20.50% | 27.60% | 58.40% | -42.30% | 38.20% |
| Price | 1.27% | -18.30% | 26.10% | 48.00% | -41.20% | 35.10% |
| Benchmark** | 8.69% | -20.40% | 22.20% | 60.10% | -38.80% | 35.40% |
Notes: *To 8 November 2012 **MSCI Emerging Markets Net Total Return Index
Source: Fund manager and Morningstar
Top 10 Investments as at 31 August 2012
| Holding | % |
|---|---|
| BlackRock Latin American Investment Trust | 7.2 |
| Henderson Asian Growth Trust | 5.2 |
| Korea Fund | 4.7 |
| Atlantis China Fund | 4.4 |
| JP Morgan Russian Securities | 4.2 |
| Tarpon All Equities Fund | 4 |
| Aberdeen Latin America Equity | 4 |
| Coronation Top 20 Fund (Offshore) | 3.8 |
| Neuberger Berman – China Equity Fund | 3.7 |
| Edinburgh Dragon Trust | 3.5 |
Source: Fund manager
This is an investment trust that invests in a portfolio of other investment trusts and can be used as a core holding for your portfolio. It has two share classes: growth (FMPG) and income (FMPI). No dividends are paid on the growth shares. Any net income arising in the growth portfolio will be transferred to the income portfolio and a corresponding transfer of an identical amount made from the capital attributable to the income shares to the growth portfolio. The income portfolio has a yield of 4.74 per cent.
Both share classes are trading on a 3 per cent discount to their net asset value. The ongoing charges are 1.60 per cent (FMPG) and 1.44 per cent (FMPI). The company invests principally in a diversified portfolio of closed-ended listed investment companies, which in turn will invest across a spread of geographic regions and sectors, giving shareholders a wide spread of risk. Both share classes have outperformed their benchmarks over several periods since launch, as you can see below.
Even if you don't wish to invest, the top 10 holdings make an interesting read if you are considering a direct portfolio of some of the best investment trusts. F&C's flagship F&C Investment Trust is notable in its absence from both top 10 lists.
Performance of FMPG and FMPI over various periods
| FMPG | Year to date* | 2011 | 2010 | 2009 |
|---|---|---|---|---|
| NAV | 15.29% | -13.26% | 23.14% | 35.24% |
| Price | 12.36% | -14.42% | 31.65% | 23.44% |
| Benchmark** | 7.99% | -5.79% | 16.28% | 19.64% |
| FMPI | Year to date* | 2011 | 2010 | 2009 |
| NAV | 15.74% | -6.94% | 22.12% | 32.48% |
| Price | 13.19% | -6.86% | 27.87% | 26.90% |
| Benchmark** | 7.99% | -5.79% | 16.28% | 19.64% |
Notes: **FTSE World Total Return GBP
Source: Morningstar
Top 10 holdings: Growth portfolio as at 31 October 2012
| Holding | % |
| Perpetual Income & Growth Trust | 5.2 |
| Lowland Investment Company | 4.1 |
| Murray International Trust | 3.9 |
| Jupiter European Opportunities Trust | 3.7 |
| Polar Cap Technology Trust | 3.4 |
| Finsbury Growth & Income | 3.3 |
| Scottish Mortgage Investment Trust | 3.3 |
| Edinburgh Dragon Trust | 3.2 |
| Templeton Emerging Markets Investment Trust | 3.1 |
| Schroder UK Mid Cap Fund | 3.1 |
Top 10 holdings: Income portfolio as at 31 October 2012
| Holding | % |
| Murray International Trust | 6 |
| Aberdeen Asian Income Fund | 5.4 |
| Law Debenture Corporation | 5.4 |
| British Assets Trust | 4.5 |
| Lowland Investment Company | 4.4 |
| Perpetual Income & Growth Investment Trust | 4.4 |
| Schroder Oriental Income Fund | 4.3 |
| Temple Bar Investment Trust | 4.1 |
| City of London Investment Trust | 4.1 |
| Schroder Real Estate Investment Trust | 3.8 |
