South Africa’s discretionary fund managers (DFMs) are anticipated to deal with passive indexation and different passive methods, additionally referred to as enhanced indexation, to optimise their mannequin portfolio returns over the following two to three years.
In addition, many DFMs are concentrating on launching unit belief variations of their mannequin portfolios and increasing into offshore market. I believes that there are two distinct evolving components in a DFM enterprise, particularly mannequin portfolios (being a mixture of various funds) and single funds made up of various asset supervisor allocations.
For the uninitiated, DFMs supply funding providers to each impartial and tied monetary advisors, in order that these intermediaries can deal with offering recommendation (and never funding administration) whereas making certain that their shoppers’ funds are invested in cost-effective and risk-and-return-appropriate mannequin portfolios.
These options are geared toward making recommendation practices extra environment friendly when it comes to funding implementation, ongoing administration of shoppers, and consumer suggestions. The win-win for DFM, monetary advisers and buyers is an answer that’s extra attractively priced with comparable funding returns.
Old Mutual Wealth differentiates from different DFMs by specializing in asset allocation when structuring its mannequin portfolios. We begin our course of with asset allocation analysis – however extra importantly, we improve this analysis by protecting the long-term actual return targets of our shoppers in thoughts.
By gaining a deeper understanding of the after-inflation returns these shoppers want to obtain, the DFM can embody an acceptable stability of asset lessons and threat inside the mannequin portfolio.
Once now we have established an optimum asset allocation for our mannequin portfolio we will go seeking asset managers – whether or not energetic, passive, or a mixture of the 2 – to implement the technique.
IFAs usually interrogate me on the funding decision-making buildings inside a DFM. We work with a multi-management group that appears after property in extra of R100 billion. Seven of the 9 group members are tasked with asset allocation and supervisor analysis, with the remaining two devoted to macroeconomic analysis and views. All selections are taken primarily based on each qualitative and quantitative data.
The former relates to the folks, efficiency, philosophy, and focus of every asset supervisor. Quantitative data, in the meantime, contains property underneath administration and measures similar to liquidity, efficiency, threat, and buying and selling type.
Retail buyers have two main focuses when it comes to their discretionary investments: charges and funding return. The burning query is whether or not DFMs merely introduce an extra layer of value, over and above what an investor would possibly pay for a balanced fund. I consider the DFM mannequin resolution has benefits in each the practicality and price stakes.
When you mix asset managers that each one take care of balanced fund options, you create a scenario the place managers take reverse views and the asset allocation image turns into blurred. It is thus higher to put one social gathering answerable for the asset allocation and search supervisor diversification at an asset class degree. And that describes how Old Mutual Wealth approaches the problem.
Because we’re not paying each social gathering for each an asset allocation and inventory choice operate, our DFM options are cost-effective in contrast to a typical balanced fund, they usually may also management threat from a major nexus.
Roland Gräbe is head of discretionary fund administration at Old Mutual Wealth.
