1. HOW TO INVEST IN MULTI-MANAGER OR FUND OF FUNDS.
If you are saving for retirement, your pension plan or simply building a lump sum but you aren’t sure which unit trust to invest in then multi-manager funds or fund of funds may be the answer. Let’s face it - the task of picking your way through more than 1,500 unit trusts in the UK market is a daunting one. The task of then buying and selling these funds at exactly the right time is even harder. Multi-manager funds or fund of funds offer the chance to pay a professional to fulfil this role and manage your pension or savings pot.

Multi-manager funds or funds of funds, are unit trusts or open ended investment companies (OEICs) that invest in other funds. (We alternate our use of the terms within this article, although we define them more closely in section 7.)

As an investor you buy these products in the same way as a direct investment fund. However, rather than just fulfilling one role in your portfolio, in the way that a European equities fund for example provides exposure to one specific asset class, they offer an entire, carefully constructed portfolio by buying funds across different regions and asset classes on your behalf.

Multimanager funds all aim to provide what practitioners call an 'investment solution' or 'one-stop shop'. However, there is still a wide range of options available.

Some group's offer very actively run fund of funds, with the potential to outpace quite racy direct equity funds by trading in and out regularly. It is also possible to buy products that are built on more cautious foundations.

Broadly, there are three common types of fund of funds. Cautious managed, balanced managed and active managed.

Cautious managed funds will invest up to 60% in shares, which are considered higher risk, and will invest the remaining 40% in lower-risk, lower return bonds and cash. Balanced managed funds can invest up to 85% in shares - so are higher risk - and actively managed fund can invest up to 100% in shares.

Increasingly, there are more variations on this concept, such as distribution funds, or more geographically-specific funds, but the three main risk profiles remain core to the concept.