Model Portfolio Research
Carli
Member
Hi Paraplanner Gang,
I was wondering if anyone could help with an issue we are having with Model Portfolio Research?
We are essentially looking for a shortlist of providers who offer both active and passive model portfolios - preferably the same amount of each( 5 each matching our risk ratings). The problem we are faced with is Defaqto does not produce an accurate list of passive funds making the actual shortlist void!
I have contacted Defaqto and they are aware of this issue but cannot offer a resolution - does anyone have any suggestions or alternative due diligence methods for Model Portfolios?
Many thanks in advance guys!
Carli
Comments
Sorry, not sure on how best to answer the general model portfolio research. I've heard of discus but not used it myself.
The company I work for didn't really find any model portfolio providers fit their needs so built their own. They've just started offering it to other companies. It's really for companies doing financial planning and the investments are just a way to get them to achieve their objectives. It's fits in really well with FinaMetrica if you use that.
There's 9 different equity allocation portfolios (starting with a 10% growth allocation, below this would be cash) both with a passive and a core-satellite (which uses the active funds to try and get a bit of outperformance depending on the client). There's also 3 income portfolios.
The website is https://ironbright.com/
We access this through Paradigm and we did at my previous firm too so I don't know how it works otherwise. We get quarterly recommendations for the active portfolios. The passive portfolios tend only to change in May following the annual asset allocation review. There are also 50/50 portfolios in each of the 5 risk profiles. These dovetail nicely with the Morningstar risk questionnaire, which we like.
We also like the Tatton Managed portfolios, which also come in a passive version. These are only available on about 6 platforms though. Contact me re the pitfalls if you go for Tatton.
If I were operating an adviser firm, I would find one suite of Multi-Asset passive funds and one suite of Multi-Asset active funds and blend them on a 50:50 basis for each of the different risk profiles.
It is then up to the managers of the different portfolios to change the underlying assets according to market conditions. It takes that whole side of what advisers do away and lets be honest no-one really knows what is going to happen anyway, so why try and second guess the market yourselves changing funds and asset allocations.
The other issue with the method you mention is unless you have discretionary permissions, I guess you need to write to the client everytime you get a quarterly notification to change, which can be cumbersome. If you only make the changes at time of annual review, this means a client could hold a fund that you no longer like for a period of 11 months, which I would suggest is not very TCF.
To give you an example of the kind of portfolio strategy I have put together for an adviser in the past, blend L&G Multi-Index with SEI and you get two portfolios with active asset allocation, one passive and one active and I should imagine the TER will be no higher than about 0.70%. Compare this with what you are doing at the moment and see what the results are in terms of return and risk, I think you will be suprised at how the risk return charts stack up, i.e. each level of risk delivers a better return haveing experienced higher volatility.
Food for thought.
N
Even if you do change one, the likelihood of the previous one being so bad that you have to get everyone out before review is slim.
Thanks guys, this isn't within my power to do anything about the moment. Maybe some day, I have bookmarked the post, in hope.
I hope Carli has a few more options for her shortlist, if only to discount, so she can produce the paperwork to demonstrate an exercise. For some of us, realistic is more limited than our ambitions unfortunately. Of course, I do appreciate your time and efforts.
How is it going Carli?
Sorry for bumping an old post but we're looking to do something similar to this - blending a few passive & active Multi-Asset funds based on our own internal screening process/outsourced research and then checking the diversification levels on FE Analytics. This basically outsources the asset allocation/most of the research to people who have much more time than us!
Q - Were the portfolios you previously built risk mapped to a certain volatility level, or were you trying to adhere to a specific asset allocation?
We're thinking of using volatility mapped funds via Defaqto and then manually checking the asset allocation of the portfolios to see if it is reasonable. Every investment committee meeting we'll check whether the funds remained within their mandated volatility rating.