Chris Ainscough, Director of Asset Management, looks at our Blended Managed Portfolio Service as it approaches 3 years since launch.
Within our Blended Managed Portfolio Service (MPS) solution, we take our central research insights and rigorous investment process and apply them in a flexible way to our Blended MPS portfolios, which offer a globally-diversified, actively-managed solution and are run on a discretionary basis.
We are not tied to using one investment implementation style or one investment vehicle structure. We choose the best method of implementing our investment ideas to try and generate the best risk-adjusted returns possible for our clients. The Charles Stanley Blended MPS solution is now risk-rated by Dynamic Planner, Defaqto and Synaptic to add additional external sense checks of the level of risk we are taking whilst facilitating client risk profiling. One of our core beliefs is that risk is more than just a single metric to be viewed in isolation and the Covid-19 pandemic once again reiterated this point.
Given our inflation-plus investment targets, we start our portfolio construction process from a blank sheet rather than taking a market index or asset allocation from external sources. There is no “home-bias” to our investment approach and therefore we invest freely across the globe. We believe an unconstrained approach to investing will deliver better risk-adjusted returns over the long term by offering a large opportunity set to us. The most obvious example of this is the small weight allocated to the domestic UK equity market, at approximately 5% of portfolios currently, even with this being held within a 0% AMC share class of the Charles Stanley Equity Fund managed by the same team.
This flexible approach removes the need for the active vs passive debate, as we buy active managers where we think there is consistent and achievable alpha to be captured, and if not then we take on targeted market beta through passive vehicles. In the context of our current allocations, this translates to approximately 60% passive vehicles and 40% active.
This split will flex through the economic cycle as we look at the environment in which we find ourselves and the opportunities available. Generally speaking, we see more scope for active managers within areas such as Emerging Markets, Asia Pacific, High Yield Bonds and Infrastructure, than developed market equities such as the US. If we anticipate a breakdown in asset class and index correlations creating an environment in which active managers should prosper, we may shift the portfolio towards select active managers in which we hold conviction.
The lion’s share of our returns over the last year, as in many recent years, came from our North American Equity exposure – particularly positions such as the Invesco Nasdaq-100 ETF. Within our passively implemented positions we continue to isolate the themes or market segments we want exposure to, with US technology being a core example. This was, however, complemented by our second-largest equity exposures to Emerging Markets, focused on Emerging Asia.