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JPM wants portfolio tools to add weight to emerging markets

JP Morgan Asset Management is lobbying several firms which provide IFA portfolio planning tools to change the weightings for emerging markets in their asset allocation models.

Head of UK retail sales Mike Parsons says IFA tools currently allocate a small weighting to emerging markets, which he considers is wrong, given the outlook for the sector.

He says: “The big problem we and IFAs have is that a lot of them use portfolio planning tools and, for a medium-risk 50-year-old investor, they tell you to put 3 or 4 per cent in emerging markets. We fundamentally disagree with that, we think it is wrong.”

Parsons says emerging markets is the sector most tipped to outperform in 2010 in a recent adviser poll, yet only 0.1 per cent of an average portfolio is allocated to this sector.

He says: “IFAs want a tool that is auditable and shows the FSA they comply with the client’s wishes. They do not want to go outside that model because if it goes wrong, the FSA will ask them why they did it. Ultimately, those models have to change and we are working quite hard with a few of the groups in terms of lobbying, talking about the assumptions they have in their models and saying we think you need to change this.

“Emerging markets are likely to be 40-50 per cent of the world’s GDP in the next 15-20 years. We are saying, do not miss out on that. I think a lot of people will if they have such small allocations.”

IFA support services firm threesixty uses a tactical asset allocation overlay on its model portfolios. Partner David Ingram says: “Model portfolios do need to react to markets as they stand so any idea of fixed weightings just does not work with us.”

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