Understanding multi-manager investing
October 2023
Some Cornerstone portfolios invest up to 35% of clients’ capital in a “multi-manager” strategy that is run by Russell Investments. This means the capital is invested with a selection of fund managers, rather than into direct shares or other assets.
The philosophy behind this approach is that the right combination of fund managers can produce better risk adjusted returns than any single manager on its own. This is because it’s exceptionally difficult for an individual fund manager to produce consistent gains across all market conditions.
It’s similar to the difference between an Olympic decathlon champion and gold medalists in individual events. Decathlon athletes are all-round competitors but specialists outperform them in single events. For example, the decathlon champion at the Tokyo Olympics ran the 100 metre sprint in 10.12 seconds, compared to the 9.80 seconds for the individual gold medallist.
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Source: www.olympics.com and www.reuters.com
Likewise, while a generalist investment manager may give you a good return – others may do better with lower risk. Multi-managers like Russell Investments attempt to find the next individual champions and bring them together in an overall portfolio.
The “dynamic core” included in some Cornerstone portfolios bring together approximately 25 active fund managers from around the world in this way.
These fund managers are handpicked by Russell Investments and include global equity managers such as RedWheel Partners, Sanders Capital and Man Numeric Investors. Other examples include private debt manager Metrics Credit Partners and Firetrail Investments for Australian shares.
The overall holdings created by this combination of fund managers has two purposes. It allows us to:
- Be nimble when markets are volatile by allowing us to modify portfolios without racking up additional transaction costs or potential tax implications for clients.
- Expand our investment universe to include fund managers or strategies not typically available to retail investors. This might include private credit funds, hedge funds or so-called volatility managers, for example.
The market volatility in March 2020 – when COVID lockdowns first sent tremors through the economy – provides a real life example of the benefits of the dynamic core.
It helped to protect clients from the worst of the market shocks and positioned their portfolios to take advantage of the rebound as investor sentiment swung wildly. In other words, our team were able to pivot and add riskier assets to portfolios at relatively cheap prices as retail investors fled the market.
The end result was our investment strategies outperformed both their benchmarks and competitors in one of the most turbulent 12-month periods in recent history.
Past performance is not a reliable indicator of future performance.
Cornerstone Financial Group Pty Ltd is a wholly owned subsidiary of Invest Blue Pty Ltd (ABN 91 100 874 744) which is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327, Australian Financial Services Licence and Australian Credit Licence No. 232706.
This website contains factual information only about the Cornerstone Portfolios. The information provided is not intended to imply any recommendation or opinion about a financial product. This website has not been prepared having regard to any retail investor’s objectives, financial situation or needs. Before making an investment decision, an investor should also consider the latest disclosure document in respect of the Cornerstone Managed Portfolio (‘‘Disclosure Document’’) and / or seek financial advice in deciding whether to make or continue to hold, an investment in the Cornerstone Managed Portfolio. The Disclosure Document can be obtained by contacting a financial adviser or the platform operator(s) offering the Cornerstone Managed Portfolio.
Russell Investment Management Ltd ABN 53 068 338 974, AFS Licence 247185 (RIM) is the Investment Manager of the Cornerstone Managed Portfolios.