However, globalisation and the internet appear to have diminished the importance of domestic factors and increased the correlation of world stockmarkets.Investors must instead use all the available asset classes at their disposal. It is not by accident that the two sectors where equity exposure is limited – balanced (maximum 85 per cent) and cautious (maximum 60 per cent) – have outperformed the active sector (no limit) over the last dozen years or so. But knowing which assets to hold and when to buy or sell them is tricky. There are a few different opinions on the matter. One that looks mathematically sound and that earned its creator, Markowitz, a Nobel prize in 1990, is modern portfolio theory. This is the philosophical opposite of traditional asset allocation. It is the creation of an economist looking at the market as a whole, rather than asset allocators looking for what makes each investment opportunity unique. Investments are described statistically, in terms of their expected long-term return and short-term volatility. Volatility is equated with risk, measuring how much worse than average an investment’s bad years are likely to be. The goal is to identify an acceptable level of risk tolerance and then find a portfolio with the maximum expected return for that level of risk. MPT theory has now reappeared in the guise of online stochastic planning tools. But while it appears fine on paper, without a significantly long time horizon, it can have disastrous effects. Around the time MPT last became popular in the early 1990s, practitioners in this science demonstrated that by adding emerging market funds to a portfolio, potential returns could be increased and risk could be reduced, due to low covariance with the rest of the world. Those who took this advice would have suffered throughout the 1990s and only in the last few years has this region added value. The lesson is not that MPT does not work but that market conditions change and static portfolios will not always work. You do not want to have a static approach in a dynamic world. This is where the additional services of an asset allocator come in. For IFAs and clients who do not have the time, skill, resources or experience to constantly evaluate changing market dynamics, this extra level of management is invaluable.
Oceanic Aset Management
ACDS Australian Natural Resources Fund
Scottish Widows is relaunching into protection with a back to basics critical-illness product that sees the firm offer- ing guaranteed rates for the first time. The CII product is stripped of special features and is only available with level decreasing cover, up to 25,000 of child cover and with an optional waiver of premium benefit. […]
New Star has appointed Richard Wilson as UK retail marketing director, following the recent appointment of Phil Wagstaff as managing director of retail sales and marketing who starts on September 7th. Wilson has been with New Star since 2003 as director of investor communications.
Indecision is not a qual- ity expected of major league fund managers. So it was with surprise that the Diary learned that North Investment Partners supremo John Husselbee was tying himself in knots over a photocall for the launch of the fund of funds boutique. Apparently, Husselbee has around 150 ties, including a couple of […]
Flexible benefits platforms are becoming increasingly popular, with 80% of employers with more than 100 employees offering some form of flexible benefits scheme, compared with just 11% a decade ago. However, global mobility of employees is on the rise, with nearly 57 million expats predicted by 2017, which can add further complexity to your picture.
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As the outlook for the UK’s economy remains uncertain, how can advisers prepare portfolios for any change in inflation? As higher inflation fails to appear on the horizon and wages grow faster than expected, fund managers are weighing up their portfolio moves for any potential changes in the economy. The UK consumer prices index rose […]
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Hartley Pensions has bought the “untainted” assets of the Lifetime Sipp Company, which went into administration earlier this year. An update published today on the website of Lifetime’s administrators Kingston Smith & Partners says Hartley Pensions has also agreed to administer the tainted Sipps held by Lifetime Sipp. The administrator described tainted assets as those where […]