Why use the Amity Fund of Funds?
The Amity funds should never be used in isolation, but used together they could form the foundation for the construction of a client’s unique target return portfolio. The funds are managed as part of your holistic investment strategy.
When decisions regarding the selection of funds are made, they are viewed in the context of how the funds fit into the advisors’ overall investment strategy. Because we know that our associates follow the same holistic strategy, our task is to ensure that the funds allow the advisor to plan his/her clients’ portfolio with specific target returns and associated risks in mind.
Our associates know that we manage the funds aligned with their holistic investment strategy, which gives them confidence and improves consistency in the planning process. From a client’s point of view it gives the client piece of mind knowing that the underlying funds are consistent with his/her specific targeted return and risk budget.
Another benefit is that the due diligence process and management of the Amity funds reduces the workload for the advisor. The advisor can never be removed from the responsibility to do proper fund due diligence on all the funds that form part of his/her house view. This function is, however, time consuming and requires an in depth analysis by the advisor. This function is basically outsourced to Amity Wealth and in the process assures the advisor and the client that proper due diligence is performed on all the underlying investments. This enables the advisor to spend more time on servicing clients and source new business.
By doing the necessary research on funds and managers, the advisor ensures that the combination of funds used in each category is aligned with the category parameters of return, risk and time horizon and that the composition of funds is appropriate for each risk category. The advisor also ensures that proper analysis is done to combine funds with different strengths and investment styles, which improves the probability of success over the medium term.
The Fund of Funds structure also ensures that implementation of changes on all clients’ portfolios is timeously and efficiently done, enhancing the service delivery of the advisor to all clients, big or small.
Using the fund of funds reduces compliance risk by enhancing the consistent delivery of the investment and service model to all clients, ensuring the appropriateness of the funds used for a specific risk profile and ensuring that proper due diligence is performed on all funds.
The fund of fund structure also enhances the tax effectiveness of the management of a portfolio as changes made in the fund do not attract capital gains tax.
The key benefits of the fund of funds are therefore:
- Alignment of the client’s investment plan, risk budget and required return
- Alignment of the fund implementation with the advisor’s wealth management strategy
- A comprehensive due diligence process on asset managers
- Return/risk optimisation through diversification
- The construction of investment portfolios using complementary asset managers, increasing the probability of achieving the targeted return whilst reducing risk at the same time
- Ongoing monitoring of the suitability of the funds in accordance with the fund’s objectives
- Enhanced consistency of investment returns over the investment term
What makes the Amity Fund of Funds different?
One of the differences between a fund of funds and a single manager fund is the diversification of the investment decision between more than one manager. In our opinion, risk can be reduced and returns can be optimised by combining fund managers with different strengths, styles and investment philosophies.
Many fund of fund managers use a building block approach to construct their fund. This means that the fund of fund manager makes a strategic and tactical asset allocation decision and then identifies managers to manage a specific asset class for him/her. They then allocate the fund’s capital to each manager based on the asset class weighting they require. This means that the asset allocation decision is made by one manager and negates the benefit of a fund of funds.
Amity’s philosophy is that risk is managed better if the asset allocation decision is diversified between more than one manager. Amity determines the strategic asset allocation parameters required to achieve a specific target return and monitors the alignment of the fund’s asset class exposure to the set parameters. The core of the Amity funds are therefore managed by asset allocation funds which are therefore primarily used in the Conserver and Prudent funds. This allows for an additional diversification strategy namely that of multi-manager tactical asset allocation.
Another differentiator is the risk allocation between the three Amity Funds. The investment committee knows that there is an alignment between the network associates’ investment strategy and the Amity funds and as a result the risk allocation is done not only on a fund level but also on a solution level. This means that the investment team will allow for more risk in the Amity Flexible Growth Fund of Funds than a typical fund in that category, while taking less risk in the Amity Conserver Fund of Funds than a typical fund in that category.
The Conserver Fund should therefore lag on a relative basis in Bull markets and outperform in Bear markets, whilst the Flexible Growth Fund will outperform in Bull markets and lag in Bear markets. This is done because risk management on the shorter term fund is more important than on the longer term fund where time is a key factor in the risk management strategy.