The Old Mutual Cirilium multi-asset range

Transcription

1 The Old Mutual Cirilium multi-asset range July 2017 Sponsor

2 Contents Introduction 3 Understanding the universe of multi-asset funds 4 Selecting multi-asset funds and fund families based on quality Selecting multi-asset risk bound funds based on suitability 6 8 The Old Mutual Cirilium offering 9 Old Mutual Cirilium Conservative portfolio 12 Old Mutual Cirilium Balanced portfolio 13 Old Mutual Cirilium Moderate portfolio 14 Old Mutual Cirilium Dynamic portfolio 15 Old Mutual Cirilium Adventurous portfolio 16 Old Mutual Cirilium range 17 Conclusion 18

3 Introduction An adviser, making decisions about which investment proposition is suitable for a client's needs, will initially have undergone a lengthy process of discovery with regard to their client. Specifically they will look at a client's goals and their needs. Then they will research how best to achieve what is required and that the choices offered to the client are relevant and based on a sound and quantifiable process. When considering investment solutions, most advisers will look at collective investment schemes and, specifically, multi-asset funds. This document presents: A framework for the analysis of the multi-asset fund universe An outline of Defaqto s approach to rating multi-asset funds, using the Old Mutual Cirilium range as an example An overview and analysis of the Old Mutual Cirilium range investment process and offering Patrick Norwood Insight Analyst/Consultant, Fund Management pnorwood@defaqto.com Acronyms AUM DNA NURS OMGI SAA TAA UCITS Assets under management Data numerical analysis Non-UCITS retail scheme Old Mutual Global Investors Strategic asset allocation Tactical asset allocation Undertaking for collective investment in transferable securities 3

4 Understanding the universe of multi-asset funds Identifying the appropriate strategy Multi-asset funds come in various forms. Defaqto s 'quadrant' chart below offers a framework to help advisers identify the key investment characteristics and the positioning of each multi-asset investment fund. Risk targeted Risk focused Risk bound Return focused Investment style Active Traditional Alternative (and traditional) Asset type Multi-asset funds Investment method Passive Active/Passive blend Management approach Single-manager (direct) Multi-manager Fund of funds Manager of managers Fettered Unfettered 4

5 Defaqto s framework focuses on four key themes: 1. Investment style Multi-asset funds can be either: Risk bound existing as families (sets of funds), with either each fund in the family targeting a certain numerical level or range of risk, and return being the secondary aim (risk targeted), or with each fund having more emphasis on return but being constrained by risk in some way eg through the Investment Association sector it sits in (risk focused) Return focused funds primarily aim to outperform a benchmark (ie FTSE 100) or a sector (ie UK All Companies) with risk being the secondary consideration Return focused funds are useful if an investor is trying to achieve a certain level of growth over time or a particular goal in terms of amount of money. In the case of risk bound fund families, each fund in the family can be used by different investors, depending on their risk tolerance and point in the investment lifecycle. In the case of risk bound families classified as risk focused, the individual funds will also be classified as return focused on a standalone basis. 2. Management approach Multi-asset funds can also be either: Single-manager one fund manager or team manages all the investments in the fund Multi-manager different fund managers are used across and sometimes within the various asset classes The rationale for multi-manager investing is that no one manager can be the best across every single asset class and, instead, one should seek out a specialist manager for each different area. The disadvantage of this approach is that by employing other managers, an extra layer of fees will be introduced, making multi-managers more expensive on average. Multi-manager funds may be either: Manager of managers a mandate will be set up with the sub-fund manager and run on a segregated basis Fund of funds the multi-asset manager is buying and selling all or part of its underlying funds The big advantage of unfettered is that the opportunity set is much larger, not only in terms of funds but also investment styles and strategies, with the result that the manager should be able to achieve greater diversification. With fettered funds, however, costs will usually be lower and the multi-asset manager will have more detailed access to the underlying fund managers. Also, monitoring fewer managers allows for greater concentration on the individual manager. 3. Asset type Multi-asset funds may be either: Traditional asset funds investments are long-only and in the traditional asset classes of equities, bonds, cash and property Alternative (and traditional) asset funds investments are a combination of traditional asset classes and alternative assets, such as private equity and infrastructure Alternative asset classes offer greater potential for higher returns and diversification; however, they can also be more risky and expensive, lack liquidity and be less transparent. 4. Investment method Finally, multi-asset funds can be: Active the underlying managers attempt to generate returns in excess of the stated benchmark/index, although there is the risk of them underperforming it Passive the underlying funds simply aim to track the benchmark/index and will normally be much less expensive. Allocation between the funds will be made on a long-term basis using a strategic asset allocation (SAA) and there is no short or medium-term active allocation (short to medium-term here means an investment horizon of roughly one to five years and would involve tactical asset allocation (TAA)). Blended significant positions can be held in both active and passive funds and/or the fund manager is able to invest in each. In addition, this includes funds holding entirely passive funds but where the fund of funds manager has freedom to make TAA weightings. Fund of funds may be either: Fettered the multi-asset fund manager can only use funds from elsewhere within their organisation Unfettered funds from any firm may be used 5

6 Selecting multi-asset funds and fund families based on quality Defaqto introduced Diamond Ratings to help advisers and investors navigate the various fund universes by providing an independent assessment of where funds and fund families sit in the market. In scoring multi-asset and other types of funds, we apply a data numeric analysis (DNA) methodology, with each fund feature and performance attribute being scored from 1 to 5, whereby 5 indicates the best possible characteristic (top quintile) and 1 indicates the worst characteristic (bottom quintile). The sum of the individual DNA scores across the range of fund features and performance attributes provides an overall score which we use to rank each fund or fund family within its respective universe and then give it a Diamond Rating of 1 to 5. Return focused funds Under our standard methodology for rating funds (which applies to those with five or more years of performance data), all return focused funds are rated on: Sharpe and Calmar ratio two different risk-adjusted performance measures; Sharpe takes into account both upside and downside risk while Calmar considers just downside risk The weightings on each of these ratios are doubled to give performance a higher impact on the overall rating. Fund size funds that are too small to be economic may be closed, while funds that are too large will find their size impacts on investor returns due to liquidity and market impact issues Group assets under management (AUM) size of group AUM is an indicator of total resources available to the fund, such as research, risk management and compliance 6

7 Risk bound fund families Risk bound fund families are rated on the following: Sharpe ratio see above Spread the range of risk available in the family of funds, calculated as the difference in delivered annualised volatility between the maximum and minimum risk fund, with a wider spread seen as better Consistency even increases in volatility / risk when moving between one fund and the next, calculated as the variance of these changes in historic volatility, with a lower variance (ie more even steps in volatility) being rated as better Shape according to investment theory, if investors take extra risk they should be rewarded with higher returns, at least over the medium to long-term. Shape measures the conformity of the family of funds to this expected positive relationship between risk and return, with a closer fit to this pattern receiving a higher score The weightings on each of the above four are doubled to give performance and risk shape a higher impact on the overall rating. Family AUM needs to be above a minimum level to be economically self-sustaining, plus size of AUM is an indicator of total resources available to the funds Number of funds in the family more funds in the family is seen as better, as it means that advisers can more closely align a fund s objectives to the needs of a particular client Return focused funds and risk bound fund families Our Diamond Rating scoring methodology also takes into account the following additional features for both return focused funds and risk bound fund families: Ongoing fund charge a lower charge is less of a drag on performance Manager tenure managers with greater experience of managing the fund is a likely indicator of achieving the fund objectives in the future Number of distribution partners the accessibility of a fund across different platforms is more convenient for advisers and investors Undertakings for the collective investments of transferable securities (UCITS) and Non-UCITS retail scheme (NURS) status funds that operate under a UCITS structure have greater controls over risk management and reporting Domicile funds registered within the UK will enable investors to access the Financial Services Compensation Scheme if necessary and avoid potentially complex tax implications This results in the overall Diamond Rating attributions for return focused funds (Chart 1) and risk bound fund families (Chart 2) below. In these charts, number of distribution partners is represented by accessibility. Chart 1: Diamond Rating attribution (funds) Chart 2: Diamond Rating attribution (fund families) 36.4% 9.1% 9.1% 7% 7% 45.5% 53% 33% Charges Other manager features Charges Other manager features Accessibility Performance Accessibility Performance 7

8 Selecting multi-asset risk bound funds based on suitability Defaqto s Risk Ratings allow advisers to assess multi-asset funds in terms of their risk and hence suitability for each client. These ratings are reached by: Looking at the fund s past (annualised) volatility of returns over 1, 3, 5 and 10 years, where that data exists Looking at the fund s projected volatility using its asset allocation and assumptions for future returns, volatilities and covariance of the asset classes it holds Discussing these numbers with the manager of the fund The perceived risk of each fund, normally the highest of the past and projected volatilities, is mapped onto a scale, where 10 is most risky and 1 is least risky, to give the fund its Defaqto Risk Rating. If a client has completed Defaqto s attitude to risk (ATR) questionnaire, their natural risk level is represented on a scale of 1 to 10, where again 10 is most risky and 1 is least risky. The adviser will then need to consider the client s financial situation, their required return and capacity for loss to identify an agreed risk level with them (the client), which determines their Defaqto Risk Profile, also on a scale of 1 to 10 where 10 is the most risky and 1 is the least risky. Each Defaqto Risk Rating corresponds to a Defaqto Risk Profile, which allows advisers to make a recommendation either using these risk rated funds or portfolios, or they may construct a separate portfolio depending on the client s objectives. It is worth remembering at this point the difference between risk targeted and risk rated funds risk targeted means a fund will aim to keep its volatility at a certain level or within a specific range, while risk rated means that Defaqto has rated a fund based on its volatility and discussion with the fund manager. Therefore, a fund can be either risk targeted or risk rated, or be both or be neither. 8

9 The Old Mutual Cirilium offering This document now considers the Old Mutual Cirilium range and its potential suitability as a multi-asset solution for clients. Background The range consists of five funds, each reflecting different return and risk orientations. Three of the funds were launched in June 2008, with the fourth added in March 2012 and the fifth in June Paul Craig is the lead manager of the Old Mutual Cirilium range. His responsibility encompasses the investment strategy and the construction and maintenance of the portfolios. He is able to draw on Old Mutual Global Investors (OMGI) multi-asset team in building and managing the Old Mutual Cirilium range. OMGI is a wholly owned subsidiary of Old Mutual Wealth Management Limited. The Old Mutual Cirilium investment philosophy The investment philosophy is rooted in the tenet that different assets are utilised to control downside risk. Specialist investors are used in these asset classes to attempt to deliver superior returns. This is achieved by combining a top-down asset allocation approach with bottom-up portfolio construction, utilising 'best of breed' managers. The Old Mutual Cirilium investment process The Old Mutual Cirilium funds are actively managed to meet the varied risk/reward tolerances of the majority of clients. The funds are multi-asset and so their portfolios can invest in a range of investment vehicles. The funds will typically invest in unit trusts, open ended investment companies, investment trusts, exchange-traded funds, exchange-traded securities and other appropriate investments that provide access to a variety of global markets and opportunities. The Old Mutual Cirilium range is underpinned by a three-stage process: 1. Selecting asset classes 2. Selecting funds 3. Portfolio construction and implementation 9

10 Step 1 Selecting asset classes The central belief underpinning the range is that being in the correct asset classes and geographical areas at the correct time in the investment and economic cycle is a key part of how the fund manager adds value to a portfolio. The fund manager considers the research of a number of independent economic commentators and investment banks, as well as incorporating the views of in-house specialist economists and fund managers. Because the range uses a number of externally recognised investment specialists, the manager also has access to a variety of third-party manager views. Step 2 Selecting funds The fund manager blends quantitative analysis of fund performance with qualitative research based on investment style and risk profile, with the aim of identifying those funds most likely to deliver long-term superior and consistent risk-adjusted returns. The managers of all potential funds are then met to discuss in detail their investment process, portfolio construction techniques, strategies and overall investment styles. For alternative asset classes such as private equity and property, where the portfolio is less transparent, even more weight is placed on the due diligence process. The process includes background checks, site visits, meeting with the whole team and continual monitoring. Step 3 - Portfolio construction and implementation Each fund within the range offers a different risk/return profile, and portfolio construction begins with the definition of the levels of asset class usage and the risk boundaries within which each fund operates. The manager believes that there are many factors that can influence performance, but the key to successful investing is to combine the right set of portfolio building blocks to create sustainable performance that consists of above average return and below average volatility. These influences include asset allocation, country allocation, sector allocation and manager style. TAA or short-term changes in the asset allocation can be a source of additional performance. Also, should opportunistic technical positions occur, it may be possible to add further value to the performance of the portfolio. Each fund's portfolio will be constructed with investments that are categorised as: Core medium to long-term holdings Tactical short to medium-term holdings Opportunistic short-term special situations holdings Risk management Investment risk is controlled by diversification and by having a number of relatively uncorrelated positions within the portfolios and monitoring these on a regular basis. The diversification comes from the fund of funds structure and the use of multiple asset classes. Additionally, the manager regularly considers threats to the portfolios and establishes risk scenarios to eliminate potential knowledge gaps. Portfolio analysis tools help provide a comprehensive approach to risk management. These include: Separate dealing desk and back office functions Automatic monitoring to ensure that procedures and controls are being followed The use of experienced and independent third parties such as shareholder servicing, fund accounting, custody and independent net asset value calculations Regular performance and attribution Regular risk factor reviews 10

11 Within the multi-asset universe Based on the quadrant multi-asset framework, Defaqto classifies the Old Mutual Cirilium funds as: Investment style Range Individual funds Risk bound Return focused Risk focused Asset type Traditional and Alternative Multi-asset framework Investment method Blended Management approach Multi-manager Fund of funds Unfettered Investment style: the individual funds are return focused while the range as a whole is classified as risk focused Investment method: blended a strong bias towards active management but with some use of external passive implementation should the manager decide this might add value Management approach: multi-manager, fund of funds, unfettered (though the funds also have flexibility to invest in direct holdings should the manager decide this might add value) Asset type: traditional and alternative High Risk Defaqto Risk Rating R I S K R I S K R I S K 10 DEFAQTO M A P P I N G 9 DEFAQTO M A P P I N G 8 DEFAQTO M A P P I N G Old Mutual Cirilium range Adventurous Dynamic R I S K 7 DEFAQTO M A P P I N G R I S K 6 DEFAQTO M A P P I N G Moderate R I S K 5 DEFAQTO M A P P I N G R I S K 4 DEFAQTO M A P P I N G Balanced R I S K 3 DEFAQTO M A P P I N G Low Risk R I S K R I S K 2 DEFAQTO M A P P I N G 1 DEFAQTO M A P P I N G Conservative Source: Defaqto Risk Ratings, June

12 Old Mutual Cirilium Conservative portfolio ISIN code: GB00B4LTHW43 Fund objective To achieve long-term capital growth through investment markets both in the UK and overseas. The portfolio will be conservative in that it will be broadly diversified across asset classes, but with a maximum exposure of 30% to equities. Asset allocation % 3.69% 1.79% 3.59% 2.38% 4.53% 4.97% 18.34% 8.10% Cash UK Corporate Bonds Global ex-uk Bonds UK Equity Europe ex-uk Equity North America Equity Absolute Return Japan Equity Property Emerging Market Equity 28.53% 24.09% Source: Old Mutual Global Investors, 31 March

13 Old Mutual Cirilium Balanced portfolio ISIN code: GB00B2Q8V089 Fund objective To achieve long-term capital growth through investment markets both in the UK and overseas. The portfolio will be cautious in that it will be broadly diversified across asset classes, but with a maximum exposure of 60% to equities. Asset allocation % 10.11% 5.43% 3.92% 11.94% 6.18% 16.27% Cash UK Corporate Bonds Global ex-uk Bonds UK Equity Europe ex-uk Equity North America Equity Absolute Return Japan Equity 9.59% Property Emerging Market Equity 10.17% 1.83% 24.56% Source: Old Mutual Global Investors, 31 March

14 Old Mutual Cirilium Moderate portfolio ISIN code: GB00B2Q8TP98 Fund objective To achieve long-term capital growth through investment markets both in the UK and overseas. The portfolio will be moderate in that it will be broadly diversified across asset classes, but with a maximum exposure of 80% to equities. Asset allocation % 15.76% 3.51% 7.72% Cash Europe ex-uk Equity 9.56% 16.90% Global ex-uk Bonds North America Equity Absolute Return Japan Equity 1.39% Property Emerging Market Equity 16.90% 14.67% UK Equity 13.59% Source: Old Mutual Global Investors, 31 March

15 Old Mutual Cirilium Dynamic portfolio ISIN code: GB00B2Q8TV58 Fund objective To achieve long-term capital growth through investment markets both in the UK and overseas. The portfolio will be diversified across asset classes, but with a maximum exposure of 90% to equities. Asset allocation % 18.33% 1.25% 3.04% 12.85% 0.65% Cash Global ex-uk Bonds Europe ex-uk Equity North America Equity 11.42% 16.18% Absolute Return Property Japan Equity Emerging Market Equity UK Equity 19.94% 16.35% Source: Old Mutual Global Investors, 31 March

16 Old Mutual Cirilium Adventurous portfolio ISIN code: GB00BF2C6C26 Fund objective To achieve long-term capital growth through investment in markets both in the UK and overseas. The fund will typically have a maximum exposure of 100%. Asset allocation % 16.86% 4.86% 4.64% 0.94% Cash Europe ex-uk Equity 11.02% 19.05% Global ex-uk Bonds Absolute Return North America Equity Japan Equity UK Equity Emerging Market Equity 20.10% 22.53% Source: Old Mutual Global Investors, 30 June

17 Old Mutual Cirilium range Performance Conservative Balanced Moderate Dynamic Source: Morningstar reinvested price series for A Acc share class from March 2012 to June 2017, rebased with March 2012 = 100 As can be seen and as would be expected, over the period the first four funds have existed, realised returns and volatility across the fund family increase with the amount of equities permitted in the portfolio. 17

18 Conclusion Risk bound funds offer investors access to well-resourced and processdriven solutions that meet suitability and return requirements. Risk bound solutions managed with discipline lend themselves to maintaining alignment with a client s tolerance for loss, both now and in the future. In many cases it is possible for the client to invest in the same family of funds throughout their investment lifecycle. However, there can be significant differences in structure, process and other features across the various risk bound fund families and return focused funds in the market, so due diligence is still very important such funds need to be monitored to ensure that they are meeting their aims and objectives on an ongoing basis, as with any fund. Also, the choice of a risk bound family and return focused fund will depend on the investment beliefs of the client and their adviser: Do they prefer the lower costs of passive management or the potential to achieve outperformance that active management offers? Do they value the greater opportunity set that unfettered management offers or the lower charges and focus of fettered management? Are they prepared to include alternative asset classes in their portfolios, with their potential diversification benefits and greater returns but possibly also greater illiquidity and risks? Defaqto s Diamond Ratings can act as a framework for research into and selection of risk bound fund families and return focused funds. Our rating methodology shows where each family or fund sits within its respective universe on the basis of our criteria as well as providing a good indication of those families and funds that have broadly delivered on their objectives. In addition, Defaqto s quadrant analysis of the multi-asset fund universe across four different investment dimensions has been designed to help, guide and educate the adviser market audience in this potentially complex area. In the case of Defaqto s Risk Ratings, meanwhile, if a client has a Defaqto Risk Profile then their adviser can view and select funds with a Defaqto Risk Rating corresponding to the client s agreed risk level, secure in the knowledge that each fund has been rated in an unbiased and independent way. Based on our review of the Old Mutual Cirilium range, we believe its strengths include: An experienced fund manager supported by a large investment/research team, together with a financially strong parent company behind the product A decent number of funds in the family, covering the 2 9 risk range (on a scale of 1 to 10) 18 A strong track record of risk-adjusted returns over the medium to long term

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21 CIRILIUM PORTFOLIOS KEEP YOUR CLIENTS ON TRACK FOR THE LONG RUN. A range of five highly diversified, risk-targeted, multi-asset portfolios which can provide clients with: The widest investment universe. Unconstrained asset allocation. Please remember that past performance is not a guide to future performance. Investment involves risk. The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. A strong track record. For the last nine years, portfolio manager Paul Craig has helped investors stay on track. So why not go the extra mile for your clients and find out more today. clientservices@omglobalinvestors.com Client Services Line For investment professionals only. This communication provides information relating to funds known as Old Mutual Cirilium Multi-Asset Portfolios (the Funds ). This communication is issued by Old Mutual Global Investors (UK) Limited (trading name Old Mutual Global Investors), a member of the Old Mutual Group. Old Mutual Global Investors is registered in England and Wales under number and its registered office is 2 Lambeth Hill London EC4P 4WR. Old Mutual Global Investors is authorised and regulated by the Financial Conduct Authority ( FCA ) with FCA register number and is owned by Old Mutual Plc, a public limited company limited by shares, incorporated in England and Wales under registered number OMGI 06/17/0106. Models constructed with Geomag.

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