Key Takeaways
- A sub-advised fund is managed by a different firm or team than where the assets are held, offering expertise in niche investment strategies.
- Sub-advised funds leverage third-party managers’ specific strategies and expertise, often providing enhanced portfolio diversification.
- Associated costs with sub-advised funds can be higher due to layered relationships; investors should scrutinize fee structures closely.
- Despite higher fees, sub-advised funds generally offer expert management, potentially leading to better strategic implementation.
What Is a Sub-Advised Fund?
A sub-advised fund is a type of investment fund where the management responsibilities are transferred to a different firm or management team than where the assets are traditionally held. These funds often utilize specialized investment strategies managed by experts, offering potential advantages, such as enhanced performance and broader diversification. This article provides straightforward answers to common questions about sub-advised funds, helping investors assess whether such funds suit their investment goals.
How Sub-Advised Funds Operate
Sub-advised funds can be found across a range of strategies in the investable market. They are the product of relationships formed across the investment management business. They allow an investment manager to contract with other investment managers to offer funds with specific investment objectives.
Sub-advisory relationships allow for one alternative in launching new funds for investors. In some cases, investment managers can launch new fund offerings more efficiently with lower costs and better operational processing through a sub-advisory relationship. Many investment managers partner with sub-advisors for lower costs and broader fund offering diversification.
Some of the investment market’s largest and most experienced investment managers build a sub-advisory platform that allows them greater access to sub-advisory relationships in the market. Wellington Asset Management and State Street Global Advisors are two investment managers that actively seek to offer their services through sub-advisory relationships.
Sub-advisory fee structure agreements vary across the investment market. Fees for sub-advised funds are typically higher due to the multi-layered relationships involved with offering a sub-advised fund. In general, investors should more closely examine the fee structures of sub-advised funds because they are often higher and more complex than traditional fund offerings.
Despite potentially higher fees, other aspects of a sub-advised fund can be advantageous for investors. Specifically, sub-advised funds are typically managed by fund managers with in-depth experience and expertise in managing a certain strategy. Fund managers for sub-advised funds are often sought out for their strategy expertise, offering investors the best strategy option in the market.
Types of Sub-Advised Fund Investments
Sub-advisory relationships span across the entire investment universe. Any type of fund can be sub-advised. Mutual funds and variable annuities are some of the most common sub-advised offerings. In a 2016 report from Pensions & Investments, Wellington is identified as the investment industry’s largest sub-advisor by assets with $499.1 billion in sub-advised assets under management.
Wellington has a well-established sub-advisory relationship with Hartford Funds and serves as a sub-advisor for the firm. The Hartford International Equity Fund is one fund sub-advised by Wellington. The Fund seeks long-term capital appreciation through investment in international equities. The Fund offers four share classes: A, F, I, and Y. Expenses vary for each of the share classes with the gross expense ratio ranging from 1.89% to 1.40%.