They say that diversification is the only free lunch in investment. But all too often it is more like a brown-bag packed lunch than a feast at the Savoy Grill in London.
For example, you would have thought that the past year would have been the ideal time to have a low allocation to global equities, apart from the giant technology shares, yet the global flexible and high equity funds have given a 22% average return, compared to 26% from global equity funds.
But the main driver of returns has not been good stock selection or asset allocation but simply the translation effect of the weak rand.
In US dollars the returns have been negligible.
In the late 1990s, the orthodox thinking, taught to every prospective chartered financial analyst, was that asset allocation was a game of chance, not skill. A balanced fund should be 60% equities and 40% bonds, and the allocation should never change.
This was combined with a rather naive view that stock selection was a game of skill. Yet the inability of most fund managers to beat an index fund shows it is also a crap shoot.
And ever-faster data has, in fact, made tactical asset allocation possible: for example, it is easier to value an asset class against its historic value than it is to value a company that way.
My concern is the long-winded investment process at Schroders
The Schroders Global Managed Growth Fund, launched on July 20, is one of the new breed of multi-asset funds, often called Diversified Growth. It was launched especially for the SA market as a fund with limited scope to use derivatives. It can only use derivatives for risk management not for investment gain.
The fund could become available in a local unit trust one day through Schroders partner Absa. It makes sense but unfortunately Absa Asset Management is now up for sale and in no position to onboard the fund.
Managed Growth will be equity centric, aiming for between 40% and 85% (SC1) equity, but it has the right to go up to 70% in bonds.
It can also go up to 30% in alternatives, which include secured credit and convertibles alongside infrastructure projects and property trusts.
The fund managers, Ugo Montrucchio and Michael Devereux, will have access to the various silos at Schroders — three global equity ones, for example. They are young but they will answer to chief investment officer Johanna Kyrklund, who won’t hesitate to crack the whip.
My concern is the long-winded investment process at Schroders, one of the curses of being the UK’s largest asset manager.
Portfolio managers can’t make independent calls. First, information is gathered by the global research team, the ponderously named strategic investment group: multi-asset. Then a global asset allocation committee votes, but after a long debate. Only then is implementation allowed.
This is quite different from the autonomy enjoyed by, for example, the Schroders equity silos such as Global Value.
I know how nimble the Ninety One Global Strategic Managed Fund has been under Philip Saunders and that remains my pick in the sector.
Still, the great thing about large firms is that they excel at distribution and marketing — that’s how they got big in the first place, so even if returns are mediocre they will still find buyers.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.