Minneapolis, MN asks…

Does it Make Sense to Work with More Than One Investment Manager?

The short answer is ‘yes,’ it can make sense for you to work with more than one manager (in the spirit of not having all of your eggs in one basket). Generally, I think there are two ways to approach how your portfolio is managed:

1) Create a diversified portfolio, and have different managers oversee each slice of your overall plan – this might mean having a fixed income manager, and then in the equity portion having a small-cap manager, a large-cap manager, an international manager, an Emerging Markets manager, and so on. The problems I see with this approach, however, are that you’d have to spend a lot of time constantly vetting your various managers, and you can rack up expenses through various management and transactional fee structures. It might end up being more work and costlier than you’d like.

2) Work with an Investment Manager that specializes in various investment approaches – sometimes you can locate a manager that has an in-house small cap manager, dividend stock manager, international manager, high yield fixed income manager, and so on (just a few examples) all under one roof. This approach doesn’t necessarily create a ‘jack of all trades, master of none’ quandary, because each specialty has its own manager with their own research team and track record. Maybe you hire a few managers from that firm to keep a good portion of your assets easily trackable in one place, and apportion other assets to other managers if you deem it necessary.

Bottom Line for Investors…

At the end of the day, you want to avoid having overlap in your aggregated portfolio. For example, having two mid-cap growth managers but no small-cap value exposure doesn’t create a diversified portfolio, even if you think the mid-cap growth managers are both ‘best of breed.’ You’ll likely end up owning a lot of the same stocks and will have too much concentration in those names, making your portfolio more risky. In some, if not many, cases you can avoid the overlap issue by hiring a single manager you trust to create a diversified portfolio for you.


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Disclosure

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.