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Asset Allocation: What is Your Exposure?

ASSET ALLOCATION REFERS to the balance of different asset classes which make up ones investment portfolio. Asset classes comprise of equities (stocks and shares), bonds, cash, alternatives, property, and commodities and the balancing of these is absolutely key to building a suitable investment portfolio. By including assets from different classes in your portfolio, you diversify and mitigate your risk.

This is because different asset classes will behave differently to changing market conditions so while one might be negatively impacted, there will be another having the reverse effect (known as negative correlation). Getting asset allocation right is argued to be the single most important factor for long term investment success.

In 2012, Infinity made a strategic decision to work in partnership with world-class investment management company, Tilney. Tilney take a ‘top-down’ approach which means they first address asset class allocation, sector/geographical exposure, and then finally the fund, only appointing an active manager if he/she has a proven track record to outperform their individual benchmark. Appointing Tilney means our clients benefit from their expertise in this specialised area.

If Tilney have identified a fund manager adding value over their equivalent ETF (passive fund), they ensure they have the following principles:

1. Focus on Increasing Wealth
The fund manager’s mind set should be focused on making the client wealthier rather than necessarily beating a market.

2. Concerned With Business Risk, Not Price Risk
Managers should be less concerned with price risk, which has an immediate effect and be more focused on the fundamentals of the business they are investing into.

3. Have Long-Term Horizons
Tilney believe managers who identify their investments based on long term fundamentals and who ultimately prefer to hold an investment for the long term will reap the benefits.

4. Unconstrained by Market Benchmark
Having a high degree of conviction allows a fund manager to focus on creating wealth rather than limiting potential returns by hugging a benchmark.

5. Hold Concentrated Portfolios
Outperforming becomes more difficult as the number of stock holdings increase. They seek managers who can strike a balance between diversification and investing with conviction in fewer positions.

6. A Willingness to Hold Cash
They like to invest with managers who, in times of increasing uncertainty, are willing to hold cash as a method of protecting assets.

7. A Willingness to Limit the Size of Their Funds
Larger pools of assets can lead to managers investing outside of their core ideas. Additionally, cash flow management and stock selection are different skill sets. On balance, Tilney prefer managers to focus on their best investment ideas.

8. Significant Personal Investment
Tilney prefer their managers to feel the same pain as their investors during difficult times and reward in the good times by investing a significant amount of their personal wealth in their own fund.

9. Longevity of the Manager/Team
Tilney invest in people as much as they buy their funds. A stable and long term management team is vital to the on-going success of any managed investment.

10. Clear, Unambiguous Statement of Investment Objectives
Does the manager have a clear, measurable definition of what constitutes investment success? They favour managers that are clear in their own mind what they are trying to deliver for their investors.

Tilney’s Global Multi-Asset Portfolios (GMAPs) are products which are highly diversified to give you off-the-shelf asset allocation. They give investors access to a range of global markets and investment strategies including equities, bonds, commercial property, hedge funds, and cash. Working out the blend between them is a serious business, based on exhaustive research and determined by Tilney’s Asset Allocation Committee.

For existing portfolios over £250,000, Tilney are able to offer a full analysis of your asset allocation, underlying funds/securities, and suitability based on the outcome of their risk profile questionnaire.

If you feel this would be valuable, as well as a review of your aggregate position with a qualified Financial Planner, feel free to get in touch.

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Sam Barrie BA(Hons) Cert CII DipPFS Sam is a UK-qualified Independent Financial Adviser and strives to raise the standards of international financial planning in Malaysia. He has been based in KL since 2009 and represents Infinity Solutions Ltd in partnership with UK-based Wealth Manager – Tilney Group. You may direct any inquiries to [email protected] or call +6017.3499 686

This article was originally published in The Expat magazine (April 2018) which is available online or in print via a free subscription.

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