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‘The majority of investors prefer a smooth ride’

Apollo Multi-Asset Management believes volatility should be managed to specific targets rather than viewed as an inevitable consequence of fund managers’ decisions.

The company says higher potential ret-urns are likely to come at the cost of an inc-reased level of risk, measured statistically by volatility or in real terms by losses. It adds that chasing the highest potential returns without setting parameters for volatility can lead to a risk level that is too high for some clients. Apollo believes with the RDR approaching, there will be more emphasis on risk profiling to ensure clients are invested in appropriate funds.

To highlight why specific volatility targets are important, Apollo has compared the returns of its funds with that of UK Government bonds and UK equities.

Figures from Financial Express show that in the period from launch on November 27, 2008 to June 22, 2011, the Apollo multi-asset balanced fund achieved a higher return with slightly lower volatility than gilts.

The fund produced 34.4 per cent with volatility of 7.2 per cent while the FTSE UK Government All Stocks gilt index returned 14.3 per cent with 7.4 per cent volatility.

The Apollo fund achieved almost three-quarters of the return of the FTSE 100 with just over a third of the volatility during the same period. The Apollo multi-asset cautious fund follows the same pattern, producing double the returns of the gilt index with 85 per cent of the volatility and 58 per cent of the FTSE 100 return over the period with less than a third of its volatility.

Apollo fund manager Ian Willings says: “The majority of investors prefer a smoother journey with returns steadily compounded over time, by trying to avoid the major losses of market corrections and participating in a good proportion of the market rises, rather than the minority who prefer to chase highest returns regardless of risk to capital and volatility.”

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  1. Julian Stevens 12th July 2011 at 9:11 am

    Of course investors prefer a smooth ride, which is why, for all its faults and the dodgy manipulations that went on behind the scenes, With Profits was so attractive.

    Yes, With Profits needed reform, but not such brutal reform imposed at such a brutal pace that most life offices were simply unable to continue to offer it as an investment option. Arguably, the collateral damage caused by the FSA’s hatchets and sledgehammers approach was at least as great as the improvements it wrought, as was seen with the forced selling of equities in colossal quantities at the worst possible time, not just for With Profits funds themselves but for the stock market as a whole. Eventually, the FSA was forced to wake up to the reality that the new solvency requirements it was imposing on life companies were forcing the stock market into a downward spiral of total collapse. So it had to backtrack, announce a fudged relaxation of those requirements but, by then, the damage was irreparable and, as a result, With Profits has never recovered. Is that really protecting consumer interests and promoting confidence in the industry? I hardly think so.

    Imperfect though it was, With Profits by and large did actually deliver smoothed returns which, as this article points out, is what many investors want. It’s a very great shame that unbridled idealism, the FSA’s stock-in-trade, was allowed to triumph over practical reality. But then that’s just one of the things you get when you have a completely unaccountable regulator that takes little or no notice of the voices of reason out here in the wilderness calling for just a little moderation.

    Still, never mind ~ the RDR will sort everything out and we’ll all live happily ever after. If only.

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