How is a Multi Manager different from an FoF?
Lets not digress. This discussion is not about the problems of a FoF per se, but about how Optimix has worked around this by adopting the Multi Manager Equity Fund approach. So in short, OMMEF will not invest in other mutual funds but instead take advice from them to create a portfolio of the scheme. Consequently, all the aforementioned tax benefits will be available. Also, this would be at no extra cost to the investor as the expense ratio will be similar to that applicable to normal equity oriented funds.
Possible limitations of the approach
(1) Possibility of a conflict of interest:
While the idea seems good on paper, there are some potential downsides. Fund management advice is coming essentially from other fund houses. I smell the possibility of a conflict of interest here. The reason is that at the end of the day, the customers of OMMEF and the advisor fund houses (whichever they are) are from the same pool. They are -- you and I – and eventually if OMMEF is performing better, then our monies would move to OMMEF rather than the advising fund houses. This is one area where Optimix will have to take care.
(2) Too many cooks syndrome:
The second area of concern is the "too many cooks syndrome". There is a reason why a ship has one master, a team has one captain and an army has one commander. The person at the helm is the one who provides the vision, guidance and leadership. When this comes from multiple diverse sources, it could lead to disorientation and chaos. Managing the managers may not prove to be an easy task as they may be left pointing to each other when accountability for performance or lack thereof arises.
The upside
That being said, the above weakness can well prove to be strength if harnessed and managed well. Just like many hands make less work, many minds should together be able to arrive at better and more informed decisions. OMMEF provides a whole other level of risk diversification for investors. A mutual fund is essentially a risk diversification tool as the investment is spread over a number of stocks. OMMEF will spread the investment over fund managers too. One may fail, the possibility of all failing is that much lesser.
Conclusion
OMMEF is the second such ‘multi manager’ offering from Optimix, the first being Optimix RetireInvest Fund Series 1 (ORIFS1). The latter scheme too, being launched only in December, its too early to tell whether this approach will work well or not. As mentioned above, it would depend upon the selection of the fund managers and how well Optimix is able to oversee them. However, at the end of the day, I feel the positives outweigh the negatives and investors looking to invest in a portfolio arrived at by the best minds in the industry with the associated tax benefits should take exposure. Issue closes on April 5.
Possible limitations of the approach
(1) Possibility of a conflict of interest:
While the idea seems good on paper, there are some potential downsides. Fund management advice is coming essentially from other fund houses. I smell the possibility of a conflict of interest here. The reason is that at the end of the day, the customers of OMMEF and the advisor fund houses (whichever they are) are from the same pool. They are -- you and I – and eventually if OMMEF is performing better, then our monies would move to OMMEF rather than the advising fund houses. This is one area where Optimix will have to take care.
(2) Too many cooks syndrome:
The second area of concern is the "too many cooks syndrome". There is a reason why a ship has one master, a team has one captain and an army has one commander. The person at the helm is the one who provides the vision, guidance and leadership. When this comes from multiple diverse sources, it could lead to disorientation and chaos. Managing the managers may not prove to be an easy task as they may be left pointing to each other when accountability for performance or lack thereof arises.
The upside
That being said, the above weakness can well prove to be strength if harnessed and managed well. Just like many hands make less work, many minds should together be able to arrive at better and more informed decisions. OMMEF provides a whole other level of risk diversification for investors. A mutual fund is essentially a risk diversification tool as the investment is spread over a number of stocks. OMMEF will spread the investment over fund managers too. One may fail, the possibility of all failing is that much lesser.
Conclusion
OMMEF is the second such ‘multi manager’ offering from Optimix, the first being Optimix RetireInvest Fund Series 1 (ORIFS1). The latter scheme too, being launched only in December, its too early to tell whether this approach will work well or not. As mentioned above, it would depend upon the selection of the fund managers and how well Optimix is able to oversee them. However, at the end of the day, I feel the positives outweigh the negatives and investors looking to invest in a portfolio arrived at by the best minds in the industry with the associated tax benefits should take exposure. Issue closes on April 5.
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