Most multi-managers have wound back their dynamic asset allocation (DAA) positions this year as market dislocations have abated, according to Lonsec’s latest sector study.
The annual multi-manager review indicated a number of managers introduced DAA, a medium-term tilting away from strategic asset allocation positions, in 2008-2009 to take advantage of the severe mispricings post the global financial crisis.
“2010 has seen most managers wind back their DAA positions as market dislocations have abated,” Lonsec senior investment analyst Deanne Fuller said.
“According to attribution data supplied by the managers, DAA contributed positively to the performance of the majority of multi-manager funds.”
The review also found there has been a significant increase in the use of index and enhanced index strategies in global equities.
“The key driver behind this trend is the desire to reduce the pressure on the fee budget as managers increase exposure to alternative assets. A secondary aim is to achieve consistency and diversification,” Fuller said.
“In Lonsec’s view, while the use of index and enhanced strategies will have the desired effect of reducing fees, it will also lead to a reduction in the alpha potential in this part of the portfolio.”
Alternatives continue to gather momentum, with nearly all multi-manager funds now employing a range of strategies.
Fuller said multi-managers continue to widen their search for new sources of uncorrelated return within their diversified funds.
“The average multi-manager growth fund now has a 9.2 per cent allocation to alternatives, which is generally funded half from growth assets, half from defensive assets,” she said.
“The most commonly used alternatives include hedge funds, commodities and infrastructure.”
The study reviewed 13 multi-managers of which four – Optimix, Mercer, Russell and Advance – received Lonsec’s highest rating of highly recommended.
