“Our philosophy as a business is that clients are better off in a well-diversified, multi-asset portfolio,” he comments, adding that there is no need to mix more than one multi-asset fund within a client’s portfolio.
Kicking the tyres
So how do advisers make a confident fund selection? For Mr Eling at Quilter, the objective when choosing funds for Intrinsic’s matrix of external investment funds is to select those that match their clients’ typical risks levels. This is not always a straightforward task, he adds.
“One of the challenges is that we’re trying to pick funds that fit our risk scale, but different fund houses have different ways to measure risk,” he says.
When selecting funds, Intrinsic’s management investment group analyses funds based on their risk profile rather than through expected returns, drawing on expertise from Morningstar and Square Mile Research.
When they are happy with a fund’s risk profile, they will then analyse its charging structure, investment style and objectives.
Richard Stammers, chief investment strategist at KW Wealth, says while his firm builds multi-asset discretionary portfolios for most of its clients, they will use a fund for clients with smaller portfolios. While there is no shortage of funds available, he says the difficulty is in finding an external manager whose investment approach matches its own.
“Our challenge is finding multi-asset funds for small portfolios that match our view of the market,” he says. The due diligence process at his firm can take anywhere from a few days to a week, which includes a full quantitative and qualitative analysis of the fund’s investment approach and management team.
External research providers serve to bolster advisers’ due diligence efforts, whether they are large firms like Quilter or smaller firms like KW Wealth. These research providers include the likes of Defaqto, Financial Express, Morningstar, Square Mile Research and Rayner Spencer Mills.
Diane Earnshaw, head of client relationships at Square Mile Research, says her firm analyses funds on multiple levels, which include looking at its investment objective, charging structure, fund manager systems and capabilities, investment process, risk controls, investment universe, transparency of holdings and more.
She says Square Mile will also conduct a quantitative analysis to ensure a fund can deliver good risk-adjusted returns.
“We start by asking, does the fund have a clear outcome?” Ms Earnshaw says, adding that one of the most important aspects is knowing what the fund is trying to achieve and what its risk profile looks like. “Fees are also important because there’s a compounding effect over time. It’s not all about cost but it is about value for money.”
