I guess there is a reason that I called this blog ‘The Wall Street Bully.’ Sometimes it is very difficult for me to silently accept and go along with new ideas that are essentially a different twist simply designed as a new marketing plot with no tangible benefit to the investor; at least not to my way of thinking.
I was reminded of that when I read a story in CNNMoney.com called “Northern Trust Introduces Multi manager Large Cap Fund.” The idea behind this scheme is to set up a manager of managers who allocates “assets to four sub-advisers chosen for their distinct investment style in selecting stocks for their portion of the Fund’s portfolio. This approach is designed to offer the optimal combination of risk and return characteristics, resulting in a style-neutral diversified fund.”
A casual reader could get the impression that this type of fund will be superior and can be held without consideration to market behavior. Wrong! These funds will fluctuate and head south (translation: lose money) in a bear market just as much as any other equity fund. It does not matter how many managers you put at the helm of this undertaking, the general direction of the market is the force that determines performance – nothing else.
My weekly StatSheet tracks 6 of Northern Trust’s funds as well, with the top ones listed in the number 52 spot (NOEQX and NOMCX) out of 596. NSGRX follows closely behind, but the other 3, which shall remain nameless, have been underperformers.
My point is the same over and over again: Make sure you have a plan to protect yourself from downside risk even if you invest in multi manager funds. The current summer/fall and hopefully year-end rebound rally will not last forever.