Like a portfolio of shares, a multi-manager investment program can help to protect clients against short-term disappointments from any individual firm. Over longer periods, it can also buffer against the cycles of fashion in the market which can favor one investment style or approach over another.
In Northern Trust's multi-manager funds, individual portfolio managers are freed to take creative risks or to pursue tight share selection disciplines which might put them at a structural disadvantage to their peers from time to time. As a result, our clients benefit from less index-constrained investment approaches which they might not consider in isolation.
At Northern Trust, we stress to our clients that there can be no return without risk, whether these are measured on an absolute or relative basis. Over the long term, returns will always be proportional to risk, so that investors seeking great rewards must be prepared to accept even greater failures. Over a century of research and practical experience has revealed no way around these laws, except for diversification.
Consequently, exceptional performance over short or even medium-term periods is unlikely to be sustained, and likely to be given back. Shorter-term market trends can be very powerful, but are nearly always reversed. Many managers try to focus on these trends and diversify their portfolios to eliminate the noise associated with individual share selection.
In contrast, we believe that over the long term most top-down market trends are noise, obscuring the signal of success in individual companies. We therefore diversify our funds in a targeted fashion in order to suppress most top-down biases in favor of share selection. This approach allows us to deliver value-added performance in sustainable, consistent increments over the long term.