Building a winning team for investors

As experienced fans and fantasy football enthusiasts well know, rarely does a single player alone dictate the outcome of a club’s season. Without a strong starting 11, and a range of talent strategically deployed across the pitch, results will struggle to be consistently positive.

The same logic applies in the world of investing, where so-called multi-manager models can be seen in action. Such structures spread investors’ money across a team of specialised stock-pickers, each with complementary skills. 

Building a cohesive team

Each individual stock-picker manages their own sleeve of the portfolio, and is an expert in their respective investment style and region – be that growth, value or emerging market equities.

The role of the (whole portfolio) manager is to then adjust team tactics in accordance with the (market) opposition – deciding which sub-portfolios should be upweighted, and when the fund should buy or sell assets as particular stock-pickers’ strategies come in and out of vogue with the direction of the markets.

Like a football manager, the portfolio manager must pay close attention to the ‘form’ of each player or stock-picker, and be ready to adjust their positions relative to the wider squad to get the best out of the talent they’re working with.

Tactical balance

Getting the right balance of relative exposure to each sub-portfolio manager is essential, just as a football manager balances the attacking flair of their forward line with the need for a solid defence and hard-working midfield to nullify their opponents’ threats.

There are times in a game when a team needs to defend deep and soak up pressure off the ball, maintaining a disciplined shape. But during more open phases of play, giving the free rein to attacking talent can produce that moment of magic which leads to a decisive goal and secures the essential three points.

So, for example, a fund’s ‘attacking’ talents may be those that are equipped to capture runaway growth in the S&P and deliver sizeable returns in a relatively short period. And this would be supported by a more defensive foundation. Such a counterbalance may well take a longer view of investment decisions and only buy companies trading on historically cheap valuations relative to earnings, in the belief they will deliver through tougher market conditions.

A squad game

What makes this structure particularly attractive is the flexibility it affords in a changing environment or if a stock picker gets injured. Certain investment styles and asset classes will come into favour as markets evolve, while the form of others will drop off or become permanently impaired.

While funds with one asset manager can of course flex in response to market headwinds or opportunities, they may struggle to adapt to a new environment. Having not just a team, but a strong bench to draw upon can be vital.

The multi-manager system can provide match-winning substitutes to slot into the team if one of the stock pickers is struggling to get into the game.