Rising inflation, tightening interest rates and market volatility are firmly established trends for 2022. It’s a state of play that puts the active asset allocation front and centre.
It’s been a common thread amongst many of the world’s most influential investors for some time now: The 60/40 portfolio is dead/useless/not fit for the times.The 60/40 portfolio is, as we all know, the default risk-return asset allocation used by the vast majority of investors who set and forget their superannuation portfolios. But it’s not only those who set and forget exposed to the same limitations.
In 2023, the vast majority of funds under management (FUM) managed by financial advisers still use strategic asset allocation driven by the risk-return appetite of their clients - this, rather than investing according to what investors actually require.
Indeed, many advisers are now using a form of Goals Based Advice. The aim is to better understand their client’s needs – a Client Best Interest duty. Goals Based Advice puts advice in the context of the client’s needs and circumstances. However, a chasmic gap exists between traditional risk profile based allocation and goals based active asset allocation. The client-centric management of risk and return to achieve specific goals is absent from the conventional model, even when deploying a more tailored approach to asset class allocation.
That’s where Dynamic Asset Allocation or Active Asset Allocation comes in. Dynamic asset allocation is commonly used by institutional investors who seek a specific risk-return outcome within a stated time horizon.
There are several benefits to both investors and advisers:
- Dynamic asset allocation moves beyond the limitations of asset class allocation by taking a forward view of individual asset risk/return potential. Asset class allocation instead focused on the historical performance of asset classes.
- More sophisticated active asset allocation utilises a broader range of assets, including resources and precious metals. The more comprehensive range combined with a focus on future asset performance places a higher priority on minimising volatility risk.
- Portfolios that target specific risk/return outcomes can be blended to target actual client goals.
- Dynamic asset allocation can be combined with Managed Discretionary Accounts to eliminate the wasted time and cost of managing authority to change administration.
- Managed discretionary accounts create the capacity for portfolio managers to make changes across their client portfolios at scale. Saving otherwise lost time results in portfolio allocations that better match current conditions. It also meets an essential compliance duty of treating all clients equally.
- The net effect of dynamic asset allocation advantages helps advisers establish more trusted client relationships through transparency, understanding, and ease of dealing.
Dynamic Asset
Dynamic Asset brings all of the advantages of active asset allocation to advisers today. Making the switch is easy.
Please contact us to find out more about how we can help your advice business.
