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Advisers clash on asset allocation

JS&P head of investments Andrew Wilson has slammed Hargreaves Lansdown’s Mark Dampier’s claim that asset allocation’s importance is over-stated, arguing that Dampier is fighting mathematics.

Wilson has responded to a recent column in Money Marketing, where Dampier said the importance of asset allocation has been widely overstated by academics, with time better spent choosing the best quality fund managers.

Dampier said academic studies saying 90 per cent of returns are from asset allocation are “only true if you get it right”, citing Jupiter’s John Chatfeild-Roberts’ poor returns from investments in Japan in 2006.

But Wilson says: “The Jupiter team have in the past done well with their asset-allocation decisions and this explains their returns versus their peer group. This is also true during times when they are less successful. Asset-allocation calls do indeed explain much of their returns, for better and for worse.”

He says Dampier’s preference for picking the best fund managers fights pure mathematics by ignoring the benefits of a properly diversified, optimised portfolio. He says most fund managers change jobs every three years – faster than the average market cycle – and says investors are therefore relying on past performance.

Dampier says: “With regard to the argument that fund managers change every three years, we do not follow the performance of the fund. Our job is to pick the best fund managers and follow them.”

He says he does not mind having a diversified portfolio so long as the diversifiers are all doing well but asks what if they all go wrong at the same time? He says commercial property is overpriced despite suggestions that it is an ideal diversifier.

Dampier adds: “As far as picking the right fund manager being the icing on the cake, it is probably harder to pick the right asset class than it is a fund. If picking the correct asset allocation is the most important decision, why didn’t everyone go short on Japan last year?”

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