1st Quarter 2015
Investing Spotlight: Multi-Management Approach
A diversified portfolio is one of the cornerstones of investing to build retirement security. By spreading your savings among assets — for example, some in stock funds and some in bond funds — you may mitigate the risk of all of your investments losing money at the same time. You can also diversify your stock fund allocations, for example, by investing some money in large companies, some in small companies, and some in foreign firms. While these steps may mitigate risk, diversification does not protect against all market risks and does not assure a profit.
Funds that use a multi-manager investment approach, such as the actively managed Vantagepoint Funds available through ICMA-RC, may add yet another layer of diversification. Note: The Vantagepoint Funds are the underlying funds of the VT Vantagepoint Funds that are made available to 401 and 457 plans administered by ICMA-RC; some plans may not include these funds.
Some frequently asked questions about the multi-management approach include:
What is a multi-management approach and how does it help with diversification? Instead of depending on a single mutual fund manager to select securities, multi-managed funds combine the investment skills and strategies of investment subadvisers who have complementary approaches and expertise. Collectively, Vantagepoint Funds have more than two dozen subadvisers across the United States and the United Kingdom (as of March 2015). Usually between two and five subadvisers are assigned to each actively managed Vantagepoint Fund.
Such investment style diversity may provide an opportunity to benefit from multiple ideas and perspectives, which can be valuable tools for navigating ever-changing markets. And while, the multi-manager approach can help mitigate single manager risk, you should remember that a fund's past performance is no indication of its future results.
How are the subadvisers selected? Subadvisers are selected based on a rigorous quantitative and qualitative review that can involve a large universe of investment managers. A potential subadviser is carefully scrutinized from many perspectives, including analysis to determine how they achieved returns, the strength of a multi-year track record, and the risks taken to achieve those returns.
The pool of candidates is narrowed further with visits to subadvisers' headquarters to meet with portfolio managers, traders, analysts, compliance managers and operations leaders to talk about their business and investing approach. The selection team also considers how a potential subadviser's approach will complement that of other subadvisers in a fund. By the end of this rigorous process, only a handful of subadviser candidates make the grade.
Do subadvisers for the Vantagepoint Funds ever change? Yes. The investment team monitors each fund's portfolio closely and frequently talks with subadvisers. More formal discussions are held at least quarterly, and we visit their headquarters annually. If there is significant turnover in portfolio management personnel, or if a subadviser's investment approach changes, the subadviser may be replaced. The review process is continual, with a focus on the subadviser's ability to deliver long-term results within a specified strategy consistent with a fund's investment objectives.