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Precision engineering

In a few articles over the past year, I have tried to address how some modern investment solutions can help advisers and investors cope with today’s extreme market conditions. I have focused on the power of investment solutions such as multi-manager products, multi-asset investing and financial engineering through structuring capabilities.

It has not been my intention to draw attention to these propositions as short-term solutions for volatile times which can be replaced by a return to old ways when markets stabilise. Underlying such propositions is a growing realisation that we need a range of longer-term solutions which can help advisers and investors cope with market volatility.

There has been some recent publicity around the fact that advisers have been ditching mainstream UK-focused funds. The UK all companies sector has declined by over £20bn in 12 months and the amounts in the UK equity income and smaller company sectors have also fallen.

Given my focus on the power of modern investment solutions, I was hoping this decline would be offset by a corresponding increased use of multi-manager, multi-asset and structured products but while there is evidence that structured product sales have increased, this has not been matched by significant growth in multi-manager and multi-asset investing.

Net increases in areas such as emerging market or money-market funds could be interpreted as reflecting an unhealthy obsession in our industry to look at shorter-term returns.

I think we should learn some lessons from the past. Chasing shorter-term returns in flavour-of-the-month products or seeking ultra cautious positions is not necessarily geared to delivering the medium to longer-term objectives on which all investment should be focused. It is the old fear or greed syndromes resurfacing but possibly at the expense of delivering real returns for investors over a market cycle.

Advisers and clients may think they can predict markets and get their timing right to make portfolio changes which will ride the next wave of opportunity. Research has shown this is a triumph of hope over experience for most.

Replacing over-dependence on one sector such as the UK by over-dependence elsewhere is not addressing the key challenges which face us all. This is the problem that multi-manager and multi-asset funds can help address.

In this context, it is pleasing to see modern multi-asset solutions coming to market.

Over the past few years, the development of Ucits and Nurs rules has opened up the universe for investments and allowed some very modern solutions to come to the fore.

Multi-manager and multi-asset products run by big fund groups can provide the key ingredients required to cope with the volatile markets that arise from the changing economic environment. These groups have the deep pockets needed to invest in and build the competence required to deliver top-class offerings.

Modern multi-asset and multi-manager solutions can provide a full service which combines the advantages of:

l Skilled specialist teams equipped with the right resources, research capability and risk management technology.

l Full-time focus on active management of portfolios.

l Access to sophisticated strategic and tactical asset allocation models.

l Diversification built into portfolio construction.

l Detailed manager research and selection processes.

l Comprehensive fund research and selection process.

l Sophisticated tools to assist with risk-adjusted portfolio construction.

l Management tools to manage, monitor and control the risk of portfolios.

l A process for ongoing portfolio rebalancing.

l An understanding of a full range of asset classes and the skills to balance these into a risk-adjusted portfolio.

By making better use of these modern propositions and services, advisers and their clients would be better protected against the risks of trying to time the markets and of making major investment bets based on shorter-term factors and considerations.

Robert Noach is head of UK financial institutions at Schroders



Paul Hogarth

A crisis in the mortgage market, falling house prices and a volatile stockmarket may not seem the ideal background against which to be building up a fledgling financial services company but market conditions have not put a damper on the spirits of Paradigm Partners chief executive Paul Hogarth. After 19 years running Bankhall, Hogarth left […]

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