Stronger together: Why we blend fund managers

Behind every actively managed equity fund is a team making decisions about which companies deserve a place in your portfolio. This month, we explore why atomos combine several of these teams to invest in equities, bringing together different strengths and perspectives. Unlike passive funds, which aim to track a market index, active managers research companies in depth and use their judgement to decide which ones to own.

A natural question is why we use several active managers, rather than backing a single fund with the strongest recent track record. While that may seem the obvious choice, experience shows that no one manager consistently leads the pack. Different investment styles come in and out of favour as market conditions change.

Say for example you were putting together a pub quiz team. You wouldn't pick four history experts, however well they did last week. The best teams bring together people with different strengths, whether that's history, sport, music or current affairs. You never know which rounds will come up, but between them, the chance is increased that someone will know the answer. Choosing fund managers works in much the same way.

By combining skilled fund managers with different approaches and investment philosophies, we aim to build portfolios that are more resilient across a range of market environments, helping to deliver a smoother investment journey over time.

Why past performance is a poor guide

Though it is tempting to assume that a manager who has beaten the market for the last few years will continue doing so, the evidence suggests otherwise. WTW’s analysis of global equity managers shows that, on average, only 27% of top-quartile managers stay in the top quartile over the subsequent three years. Across more than 1,400 three-year periods since 2003, the research found almost no relationship between past outperformance and future outperformance.

This does not mean that investment skill is unimportant. It means that recent returns alone tell us little about it. A strong result may reflect sound judgement, but over shorter periods it can also owe much to luck or market conditions that suit a particular approach.

Even great managers have difficult years

Every active manager has a style, i.e., a particular way of identifying good investments:

• Some look for undervalued companies – ‘Value’ managers
• Others for businesses with strong, reliable profits– ‘Quality’ managers
• Others for companies growing faster than the rest of the market-- ‘Growth’ managers

These styles take turns leading the market, and a style that has done well for several years can quickly fall out of favour.

Relying on a single active manager means the portfolio's success depends heavily on one investment philosophy, one research process and one team. If that approach falls out of favour, the entire allocation may struggle at the same time.

Why blending managers helps

Combining managers with different strengths helps spread that risk. The answer is not to find one manager who never has a bad year. It is to combine several skilled managers whose styles and approaches differ, so that their good and bad periods don't all arrive at once.

When one manager is struggling because their style is out of favour, another is often doing well. Blended together, the peaks and troughs of individual managers tend to offset each other, giving a smoother overall return than any one of them delivers on their own and making it easier for investors to stay invested through difficult periods. WTW's research suggests that with a modest number of skilled managers whose returns/investment styles are not closely linked, the chance of the overall portfolio meaningfully underperforming falls sharply.

There is a balance to strike: As more managers are added to the line-up, the probability of underperformance from the overall portfolio decreases rapidly. Add too many managers and the portfolio starts to look like the index. The aim is to have enough managers to diversify, with each still taking genuine, high-conviction positions.

Our approach at atomos

Active equity strategies sit alongside passive and systematic (“smart beta”) approaches within the broader equity allocation. Each plays a different role, helping us balance the pursuit of long-term returns with diversification, risk management and cost efficiency.

As a reminder:

• Passive strategies aim to track the market at low cost, providing broad exposure to global equities.
• Smart beta strategies sit between passive and active investing, systematically tilting towards factors such as quality, value or momentum that have historically been rewarded over time.
• Active managers rely on judgement and investment insight to identify companies they believe can outperform the wider market.

Rather than relying on a single investment team, the active equity allocation is built using a range of carefully selected managers, which undergo WTW’s rigorous manager research process. Each brings a distinct perspective and area of expertise, creating multiple sources of potential excess return within the portfolio.

The focus is not on finding the manager that performed best last year, but on identifying managers with robust investment processes, strong research capabilities and a clear edge in their area of the market. We continually monitor these managers to ensure they remain aligned with our expectations and continue to add value in the overall portfolio construction process.

Ultimately, this approach helps atomos clients stay invested with confidence, knowing their portfolio is not dependent on one manager, one investment style or one market,while enjoying a smoother investment journey over the long term.