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22 August 2013

Is Multi Asset Management The Answer?

22 August 2013

Bruce Cameron wrote: “Multi Asset Collective Investments Schemes, is where an asset  manager decides on the asset allocation and the underlying assets  in each asset class. This is preferable to you or your financial advisor choosing different asset portfolios and trying to blend them to get superior returns”.

“It appears that the years of engaging madness, when many (including financial advisors) thought they could outsmart the markets, are drawing to an end. In fact, evidence shows lately that when wide investment choices is offered in retirement savings products, it is very seldom exercised by fund members - it simply costs more. It has been amazing how often bubbles occur and people have rushed to invest, only to experience the bubble bursting, leaving shattered dreams of wealth.  The proof that the madness is ending is that more and more people are turning to multi asset managers.”

Bruce Cameron remarked that the popularity of low cost index tracking funds is mainly due to the difficulty of finding active asset managers who can consistently deliver above average performance after costs.

If these asset managers, many of whom are the brightest of the bright, highly skilled, and spend all day looking at computer screens, cannot get it right all the time, what chance does a financial advisor, without investment skills or the necessary category II or IIA, have of consistently outsmarting the markets? The evidence shows you have very little chance.

According to the Association of Savings and Investments SA (Asisa) local collective investment schemes - both unit trust funds and ETF’s - attracted net inflows of R49 billion during the second quarter of this year.  The interesting thing is where most of this money went?  It went mainly into the local multi asset category.

Bruce Cameron further said “I suspect an increasing number of financial advisors are steering clients into multi asset funds as a Financial Advisory Intermediate Service (FAIS Act) increasingly takes hold particularly consequent of determinations and compensation orders by FAIS Ombud, Noluntu Bam.

She has made it quite clear that advisors need to show expertise in giving investment advice -  and I doubt many financial advisors have the required expertise”.

Are multi asset managers really the solution?

The first problem is that Multi Asset Managers invest only in local assets, which is a huge disadvantage at the moment as the Collective Investment Schemes Act still allows flexible unit trust fund managers to invest up to 25% offshore where most of the growth should take place as quantitative easing in the first world countries is tapering off and capital flowing back to first world countries. 

The second problem with Multi Asset Managers is that the client is only diversified to one manager making the decisions, whereas in the case of a fund of funds like KMB FoF and KMF FoF various fund managers who make independent decisions, are carefully selected, and better diversification is established.

Thirdly, Multi Asset Managers follow a bottom up methodology, where they do not try to time the market cycles. In other words, if the market crashes like the Far East Pacific crash of 1998, the IT Bubble crash of 2000, the Currency Crash of 2002 and the Credit Crunch Crash of 2008, your clients crash with the market and it can take many months before they make a comeback, which is a disaster to living annuity clients who draw income during the down turn.

Markets can go down and bounce back relatively quickly, but it can also stay depressed for years, like during the 1929 crash for example.

According to the attached fund fact sheets  of KMF and KMB, which are the predecessor  funds of KMF FoF and KMB FoF, we followed the macro top downs strategy where it is clear in par 7 how our macro top down strategy protected living annuities during these crashes.  You can visit for more information.

Kanaan Trust

(Download as a Word Document)

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