Consultancy Report February 2016: Standard Life Myfolio Multi Manager Funds

Transcription

1 Consultancy Report February 2016: Myfolio Multi Manager Funds Square Mile Categorisation Outcome: Capital Accumulation Risk Based Approach: Risk Targeted Asset Class Breadth: Diversified Asset Allocation: Strategic & Tactical Investment Implementation: Active Fund Selection Approach: Fund of Funds (FofF) Overview The (SLI) MyFolio Multi Manager fund range is one of five risk targeted ranges offered by the group. The family of 25 funds consists of both growth and income focused varieties as well as a choice of active and passive investment styles. The Multi Manager range consists of five growth orientated, actively managed unfettered fund of funds. The range carries the highest ongoing charges compared to the other two growth orientated ranges, MyFolio Market and MyFolio Managed, due to the predominant use of whole of market actively managed funds. Head of Fund of Funds at SLI is Bambos Hambi, and he is also named manager for the entire MyFolio range. All funds in the range have been designed such that each has different expected risk and reward characteristics, and that they fall at broadly equal intervals along the efficient frontier. Each fund s expected volatility target is constructed based on a 10 year time horizon. SLI engage with Barrie & Hibbert, a Moody s Analytics Company, when determining the optimum strategic asset allocation for each fund. The Multi Asset Investing (MAI) team, which is responsible for the successful GARS product, provide the tactical asset allocation. Fund selection is the responsibility of the Fund Solutions Team. Each fund in the range will aim, in addition to delivering to its risk targets, to provide performance over the medium term that is commensurate with the level of risk being taken, and that is in excess of its equivalent fund in the Market range. Investors should note that between 10% and 20% of the funds will be invested in absolute return strategies, and that this is a structural constraint imposed by the longer term allocation. The aim of the absolute return strategies is to dampen the overall level of fund volatility. Follow Square Mile Investment Consulting & Research Limited

2 Consultancy Report - MyFolio Multi Manager Funds Figure 1: Summary Information Fund Name MyFolio Multi Manager I MyFolio Multi Manager II MyFolio Multi Manager III MyFolio Multi Manager IV MyFolio Multi Manager V Launch Date 20/09/10 20/09/10 20/09/10 20/09/10 20/09/10 Fund Size ( m) IA Sector IA Unclassified IA Unclassified IA Unclassified IA Unclassified IA Unclassified OCF* 1.19% 1.24% 1.32% 1.42% 1.38% Risk Targets 3.0% - 5.5% 5.5% - 8.5% 8.5% % 12.0% % 15.5% % Forecast Risk Targeted Horizon 10 Years 10 Years 10 Years 10 Years 10 Years Risk Profile n/a n/a n/a n/a n/a Strategic Asset Allocation Barrie & Hibbert Barrie & Hibbert Barrie & Hibbert Barrie & Hibbert Barrie & Hibbert Tactical Asset Allocation Fund Selection Source: FE Analytics and Data as at: 31st December 2015 *The ongoing charge fee (OCF) relates to Retail Platform share class 2

3 Consultancy Report - MyFolio Multi Manager Funds Contents Opinion 1.1 Parent 1.2 Objectives and Investment Policy 1.3 Forecasted Risk and Reward 1.4 Asset Allocation 1.5 Implementation 1.6 Risk Controls 1.7 Resources 1.8 Performance and Risk Data 1.9 Glossary

4 Consultancy Report - MyFolio Multi Manager Funds Myfolio Multi Manager Funds 1.1 Opinion The MyFolio Multi Manager fund range is part of a strong overall risk targeted proposition offered by. The three main facets to the fund range strategy, strategic asset allocation, tactical asset allocation and fund selection, are all well resourced and involve suitably experienced individuals. This includes the SLI Multi Asset Investing team, responsible for the successful Global Absolute Return Strategy (GARS) product, providing the tactical overlay. Bambos Hambi, a veteran of multi manager investing, is responsible for fund selection and is supported by a stable team. Additionally, the whole process is overseen and controlled by a committee of senior executives within SLI. This combination is one which we feel is robust and can deliver an outcome for clients which should meet their longer term expectations. 1.2 Parent is a leading asset manager with an expanding global reach. They offer a wide range of investment solutions which are backed by their distinctive Focus on Change investment philosophy, disciplined risk management and shared commitment to a culture of investment excellence. As active managers, a significant amount of emphasis is placed on rigorous research and a strong collaborative ethos. They continually attempt to think ahead and anticipate change before it happens, rather than simply following the general investment crowd. managed circa 250 billion, as at the end of Q2 2015, on behalf of clients worldwide. The group s investment capabilities span equities, bonds, real estate, private equity, multiasset solutions, fund-of-funds and absolute return strategies. In July 2014, acquired Ignis Asset Management, a UK asset manager with assets around 60 billion. The acquisition of Ignis was seen to complement the group s strong organic growth and enhance their strategic position through deepened investment capabilities in key areas, including government bonds and liquidity. The combined business now offers a full range of investment solutions, ensuring they continue to meet the evolving needs of investors. 1.3 Objectives and Investment Policy MyFolio Multi Manager I The fund aims to provide a total return from a combination of income and capital appreciation over the longer term, investing mainly in a range of collective investment schemes from selected managers to achieve a broad exposure to diversified investments, including equities, absolute return strategies, fixed and variable rate interest bearing securities and immoveable property. The fund may also invest in transferable securities, money market instruments, deposits and cash. The investment managers are selected for their investment expertise and are monitored on an ongoing basis. This selection and ongoing monitoring is currently undertaken by and is based on extensive research with the aim of blending managers with expertise across the chosen asset classes. Typically, the fund will have high exposure to lower risk assets, such as bonds. MyFolio Multi Manager II The fund aims to provide a total return from a combination of income and capital appreciation over the longer term, investing mainly in a range of collective investment schemes from selected managers to achieve a broad exposure to diversified investments, including equities, absolute return strategies, fixed and variable rate interest bearing securities and immoveable property. The fund may also invest in transferable securities, money market instruments, deposits and cash. The investment managers are selected for their investment expertise and are monitored on an ongoing basis. This selection and ongoing monitoring is currently undertaken by and is based on extensive research with the aim of blending managers with expertise across the chosen asset classes. Typically, the fund will have a preference towards lower risk assets, such as bonds. MyFolio Multi Manager III The fund aims to provide a total return from a combination of income and capital appreciation over the longer term, investing mainly in a range of collective investment schemes from selected managers to achieve a broad exposure to diversified investments, including equities, absolute return strategies, fixed and variable rate interest bearing securities and immoveable property. The fund may also invest in transferable securities, money market instruments, deposits and cash. The investment managers are selected for their investment expertise and are monitored on an ongoing basis. This selection and ongoing monitoring is currently undertaken by and is based on extensive research 4

5 Consultancy Report - MyFolio Multi Manager Funds with the aim of blending managers with expertise across the chosen asset classes. Typically the fund will take a balanced view on lower and higher risk assets. MyFolio Multi Manager IV The fund aims to provide a total return from a combination of income and capital appreciation over the longer term, investing mainly in a range of collective investment schemes from selected managers to achieve a broad exposure to diversified investments, including equities, absolute return strategies, fixed and variable rate interest bearing securities and immoveable property. The fund may also invest in transferable securities, money market instruments, deposits and cash. The investment managers are selected for their investment expertise and are monitored on an ongoing basis. This selection and ongoing monitoring is currently undertaken by and is based on extensive research with the aim of blending managers with expertise across the chosen asset classes. Typically, the fund will have a preference to those assets providing the potential for growth, such as equities. MyFolio Multi Manager V The fund aims to provide a total return from a combination of income and capital appreciation over the longer term, investing mainly in a range of collective investment schemes from selected managers to achieve a broad exposure to diversified investments, including equities, absolute return strategies, fixed and variable rate interest bearing securities and immoveable property. The fund may also invest in transferable securities, money market instruments, deposits and cash. The investment managers are selected for their investment expertise and are monitored on an ongoing basis. This selection and ongoing monitoring is currently undertaken by and is based on extensive research with the aim of blending managers with expertise across the chosen asset classes. Typically, the fund will have high exposure to assets providing the potential for growth, such as equities. 5

6 Consultancy Report - MyFolio Multi Manager Funds 1.4 Risk and Reward Chart Figure 2: The chart below shows the historical 10 year annualised risk and reward figures for a number of asset classes along with the expected volatility bands of the MyFolio Multi Manager funds over the same time horizon. 9% 8% 7% North America Asia Pacific Excluding Japan 6% UK Index - Linked Gilts Annualised Return 5% 4% 3% Global Bonds Sterling Corporate Bond UK Gilts UK All Companies Europe Excluding UK Global Emerging Markets Property 2% Japanese Equity 1% Money Market 0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Volatility annualised MyFolio Multi Manager I MyFolio Multi Manager II MyFolio Multi Manager III MyFolio Multi Manager IV MyFolio Multi Manager V Source: FE Analytics and Data as at: 31st December

7 Consultancy Report - MyFolio Multi Manager Funds 1.5 Asset Allocation When SLI designed the MyFolio solution, the starting point for portfolio construction for each fund was the selection of longer term risk targets. Following consideration, it was decided that at the very lowest end of the range they wanted to provide a fund which would utilise enough volatility in order to derive a return that was above that of cash and, at the highest end of the range, a fund which would provide a level of return that was similar to that which could be expected from investing in the FTSE All Share, a widely used barometer for returns for UK IFA s. Based on these requirements and using empirical data of asset class returns, the upper and lower risk boundaries for MyFolio I and MyFolio V were set at 3.0%-5.5% and 15.5%-18.5% respectively. The other 3 funds in the range are positioned broadly equidistant along the efficient frontier between these upper and lower boundaries. It should be noted that the volatility bands could be adjusted if the expectation for longer term volatility was to move significantly from current levels. However this would not be expected to be a meaningful move. In order to create efficient portfolios that fall within each of the risk bands, SLI work in conjunction with Moody s Analytics. SLI specifically work with Barrie & Hibbert, which is part of the Risk Management Software segment of the Moody s Corporation, that acquired the business in SLI s relationship with Barrie & Hibbert extends beyond their acquisition, and they have worked with them since the funds were launched, back in Barrie & Hibbert is a leading provider of financial risk modelling, which includes building stochastic models and calibrations. It has one of the largest teams in the world committed to the commercial development and delivery of these disciplines. This team includes financial experts and academics, economists, mathematicians and actuaries, all working together to bridge the gap between financial market theory and practice. One of the key reasons SLI chose to work with Barrie & Hibbert was that, in their view, they employ one of the most sophisticated economic and stochastic models in the market place. Generally it is perceived that there are two types of asset class modelling approaches prominent in the market. A deterministic approach, that is generally backward looking and non-timeframe specific and stochastic modelling that is forward looking and term centric. Broadly, stochastic modelling is a sophisticated system of predicting outcomes that takes into account a certain degree of randomness or unpredictability. Over the last few years, where volatility has been relatively low, manufacturers using the deterministic approach have tended to create portfolios that reflect this lower level of market risk, and could be seen as potentially underestimating risk. This contrasts with the stochastic approach, which is more forward looking. SLI consults with Barrie & Hibbert to set the strategic asset allocation. Barrie & Hibbert has created its Economic Scenario Generator (ESG) that provides Monte-Carlo simulation paths for the joint behaviour of financial market risk factors and economic variables. The ESG takes into account numerous data, including equity returns, yield curves, credit spreads, ratings transitions and defaults, option-implied volatilities, real estate returns, alternative assets, inflation and exchange rates. The process begins with a detailed understanding of how each selected asset class is expected to behave over the longer term, its volatility and how its performance correlates with other asset classes. The interaction between SLI and Barrie & Hibbert is a collaborative one. Barrie & Hibbert provide information on asset class returns and volatility and consult with SLI regarding trends and changes to expectations. However, responsibility for decisions around which asset classes are included firmly lies with SLI. Additionally, SLI sets out the broad framework that Barrie & Hibbert work to when undertaking its optimisation process. The aim of this framework is to ensure that a highly diversified range of model portfolios are created that are not overly exposed to any one particular area. A sterling bias is enforced as the funds are predominantly targeted at UK based investors. A cap on the overall exposure to property is also in place. This currently stands at 15% and was decided due to the general illiquidity associated with property investment. The constrained optimisation process is set based on a 10 year time horizon. The models are then assessed by the SLI Strategic Asset Allocation Committee to make sure they are appropriate and in line with the overall philosophy of the proposition. This committee comprises senior SLI investment professionals from across the business including Mr Hambi. The current granular breakdown of assets include; cash and money market, UK Gilts, UK index linked Gilts, sterling corporate bonds, equities from the UK, US, Europe, Japan, Asia Pacific and emerging markets, sterling hedged global high yield and UK property. The strategic asset allocation is formally reviewed on a quarterly basis by the committee, following completion of Barrie & Hibbert s most recent analysis. The funds will also have a structural exposure to absolute return vehicles. This has been imposed on the final portfolio weightings by SLI in order to provide a further source of diversification and to attempt to dampen the overall level of volatility of each portfolio. As discussed, the strategic asset allocation sets the broad framework for the funds. SLI s approach allows flexibility around 7

8 Consultancy Report - MyFolio Multi Manager Funds this framework based on the acknowledgement that, short term market conditions can cause deviations away from the longer term expectations. Therefore, tactical positions, relative to the longer term positions, are taken according to prevailing market conditions. The group responsible for deciding on the short term positions taken within the funds is the MAI team. This team respond to changes in the house view, which are set through two key forums; the Global Investment Group (GIG) and the Multi-Asset Investing Global Investment Group (MAI GIG). These forums draw on the insights from the wider SLI investment analysis capabilities and research from the Global Strategy Team. The GIG consists of senior investment managers at SLI, who provide the overall strategic clarity for the investment process, through a mix of weekly and quarterly meetings. Additionally, the GIG decides on the broad asset allocation issues based on the prevailing market drivers and on forecasts of future economic indicators. The MAI GIG is a separate sub-committee responsible for global tactical asset allocation decisions and the more granular asset class outlook. The committee meets on a weekly basis and consists of senior members of the MAI team. It is chaired by either Guy Stern, Head of Multi-Asset and Macro Investment, or Andrew Milligan, Head of the Global Strategy team, to ensure liaison with the main GIG, as both are members of this group too. The external communication of the SLI house view is primarily achieved through the Global Series publications, which includes Global Outlook and Global Perspective. There are a number of controls around the level of deviation which may be taken from the longer term allocation. The funds generally allow up to +/-5% at the granular asset class level provided other restrictions are met. For example, SLI think broadly about the structure of the portfolios in terms of growth and defensive assets, with the weighting to growth assets increasing as you move up the risk scale. Defensive assets are defined as cash, conventional & index linked Gilts, sterling corporate bonds and absolute return bond strategies. All other investments are defined as growth assets. A +/-5% limit, with regard to changes in the overall growth and defensive weightings, must also be adhered to. Growth assets, are further categorised into developed market equities and alternatives, which includes property, emerging market equity, emerging market debt and sterling high yield bonds. This same +/-5% limit applies to investments within the growth portion too. These limits seek to ensure that there is always both a high level of diversification within the funds, and that changes to the longer term asset allocation do not compromise the risk targets. 8

9 Consultancy Report - MyFolio Multi Manager Funds Figure 3: Asset Allocation as at 31/12/15 MyFolio Multi-Manager Funds I II III IV V Cash & Money Markets 11.15% 3.40% 3.40% 2.30% 1.00% UK Gilts 3.95% 0.00% 0.00% 0.00% 0.00% Short dated UK Gilts 3.95% 0.00% 0.00% 0.00% 0.00% Global Index Linked Bonds 4.15% 4.20% 1.40% 0.00% 0.00% Short Dated Global Index Linked Bonds 4.15% 4.20% 1.40% 0.00% 0.00% Sterling Corporate Bonds 17.50% 15.60% 8.95% 2.00% 0.00% Short Dated Sterling Corporate Bonds 17.50% 15.60% 8.95% 2.00% 0.00% Absolute Returns Bonds 7.10% 5.00% 2.90% 1.00% 0.00% Defensive Assets 69.45% 48.00% 27.00% 7.30% 1.00% UK Equities 7.70% 13.30% 18.90% 23.80% 26.20% US Equities 2.60% 8.05% 12.75% 18.15% 23.10% European Equities 2.55% 3.95% 5.15% 6.35% 7.45% Japan Equities 1.80% 3.45% 4.25% 5.25% 6.15% Asia Pacific Equities 0.00% 0.00% 0.00% 0.85% 1.45% Emerging Market Equities 0.00% 0.70% 2.70% 4.05% 5.55% Sterling Hedged Global High Yield 3.80% 4.50% 4.50% 6.20% 4.55% Emerging Market Debt 1.30% 0.35% 0.35% 0.35% 0.35% UK Property 5.00% 7.60% 10.10% 9.70% 4.40% Absolute Returns 5.80% 10.10% 14.30% 18.00% 19.80% Growth Assets 30.55% 52.00% 73.00% 92.70% 99.00% Source: Data as at: 31st December

10 Consultancy Report - MyFolio Multi Manager Funds 1.6 Implementation Once the various committees and groups have decided on the asset classes and their weightings it is the responsibility of the SLI Fund Solutions Team to populate these with appropriate funds and to ensure risk at the portfolio level is in line with the stated targets. Their role is to act as a centre of excellence for fund selection within the SLI Group. The team, headed by Bambos Hambi, is currently 10 strong and based in London. They apply a consistent and tried and tested manager selection process, undertaking both quantitative and qualitative research in order to produce a list of best of breed funds. The first stage in the fund selection process is quantitative. The key objective of this stage is to identify funds which have consistently provided a superior level of risk adjusted return. The teams investible universe has been identified as comprising around 6,500 funds, consisting of a wide range of investment styles. Funds are categorised into more meaningful groups and sub-categories, in order that more like for like comparisons can be made. The time frame over which the team concentrate its quantitative screens is five years, however funds with a track record of less than this period, or those which do not meet the criteria, may make it through the filter, should there be a justifiable reason for doing so. Funds which make it through the quantitative screen are then subjected to a more qualitative examination. The team s fund manager research and selection process is based upon a framework, which is referred to as the Five P s; Philosophy, Process, People, Performance and Price, and forms the basis of all work in this area. A brief explanation of each aspect is as follows; Philosophy - they seek to understand what each fund is trying to achieve and why. This formulates the basis on which the research is conducted. Process - they seek to determine how a fund will be managed, and aim to identify key aspects of the investment process. This is the area where the majority of time is devoted. People -not only do they assess the skills and experience of the fund manager or team but also the resources available to them. Performance - here they not only look at raw performance numbers but also the level of consistency and the market environment in which it was achieved. This assessment essentially helps identify whether the funds philosophy, process and people have resulted in an outcome which is inline with its objectives. Price - this is the final consideration. All things being equal, the fund that represents the best value will be selected. However, the team do not compromise on quality at the expense of value, and therefore higher conviction funds are likely to prevail over less expensive ones. The team look for longer term winners in class and the approach generally leads to protracted holding periods. The MyFolio Multi Manager funds will be invested predominantly in actively managed regulated open ended funds. Passive funds may be used should the team be unable to find opportunities within a particular asset class. For example, historically the funds have held passive investments in order to gain exposure to US equities and UK government bonds. Additionally the team may use passive funds and/or ETFs to implement tactical changes to the asset allocation. Whilst this range of funds is SLI s whole of market proposition, they can and do hold internal funds where there are clear benefits for doing so. For example, the team will access the groups GARS and absolute return bond products to populate the absolute return weighting within the longer term asset allocation. The funds have also invested in the groups own property vehicles. As a rule, the funds do not hedge currency exposure, but the manager may buy investments that have share classes which are hedged back to Sterling. For the fixed income portion of the funds, Sterling hedged share classes will be purchased if the investment is not in UK fixed interest assets. The outlier to this is emerging market debt which will remained unhedged. The manager will not rigorously seek to rebalance cash flows back to the pre-determined tactical positions, as this is deemed counterproductive from a cost perspective. Instead, he will sensibly allocate funds in an efficient way, but one which remains sympathetic to the shorter term views of the group. 10

11 Consultancy Report - MyFolio Multi Manager Funds Figure 4: Top Ten Holdings data as at 31/12/15 MyFolio Multi Manager I % BNY Mellon Absolute Return Bond 6.9% Fidelity Institutional UK Corporate Bond 6.6% TwentyFour Corporate Bond 5.7% Global Absolute Return Strategies 5.7% Morgan Stanley Sterling Corporate Bond 5.6% Smith & Williamson Short Dated Corporate Bond 4.6% AXA Sterling Credit Short Duration Bond 4.4% Royal London Short Duration Gilts 4.1% Royal London Global Index Iinked 4.0% FF Global Inflation Linked Bond 4.0% MyFolio Multi Manager II % Global Absolute Return Strategies 9.6% Fidelity Institutional UK Corporate Bond 6.0% BNY Mellon Absolute Return Bond 5.5% Henderson UK Property OEIC 4.9% Royal London Global Index Iinked 4.6% TwentyFour Corporate Bond 4.5% Morgan Stanley Sterling Corporate Bond 4.4% FF Global Inflation Linked Bond 4.3% JOHCM UK Dynamic 3.8% Majedie UK Equity 3.5% MyFolio Multi Manager III % MyFolio Multi Manager IV % Global Absolute Return Strategies 13.8% Global Absolute Return Strategies 17.6% Henderson UK Property OEIC 5.1% JOHCM UK Dynamic 4.7% Vanguard US Equity Index 4.5% M&G Property Portfolio 4.5% Investec UK Alpha 4.4% Majedie UK Equity 4.4% Artemis US Select 4.3% Fidelity Institutional UK Corporate Bond 4.2% Artemis European Opportunities 3.8% JOHCM UK Dynamic 6.2% Henderson UK Property OEIC 6.0% Artemis US Select 5.7% Majedie UK Equity 5.7% Investec UK Alpha 5.4% Vanguard US Equity Index 4.9% L&G US Index 4.8% Nomura US High Yield Bond 4.5% Artemis European Opportunities 4.3% 11

12 Consultancy Report - MyFolio Multi Manager Funds Figure 4: Continued MyFolio Multi Manager V % Global Absolute Return Strategies 19.5% Vanguard US Equity Index 7.2% JOHCM UK Dynamic 6.6% Majedie UK Equity 6.3% Artemis US Select 6.2% Investec UK Alpha 5.5% L&G US Index 5.1% BlackRock US Equity Tracker 5.1% Artemis European Opportunities 5.0% Schroder Tokyo 3.9% Source: FE Analytics Data as at: 31st December

13 Consultancy Report - MyFolio Multi Manager Funds 1.7 Risk Controls There are numerous layers of risk management which permeate the MyFolio proposition. The Strategic Asset Allocation Committee reviews the longer term allocations of the fund range in conjunction with Barrie & Hibbert quarterly, to ensure the funds, on a forward looking basis, continue to be managed to their stated risk targets. There are hard limits in place at the asset allocation level, both on a broad asset class and sub asset class basis, to ensure that tactical deviations from the strategic asset allocation do not have a major impact on the overall level of risk that the funds are targeting. The Fund Solutions team spend a lot of their time trying to understand the funds they invest in, and in particular the level of risk which each is expected to contribute to the portfolio. In addition to historical risk measures, they also consider forward looking indicators. In order to do this the team have to have up to date holdings information for each fund. SLI insist on monthly portfolio holdings data as at the 15th day of every month, and for all investment groups that they deal with, nondisclosure agreements are in place. Data from this exercise is run through Style Research, and this highlights the risk characteristic of each fund, in terms of tracking error, growth or value characteristics, market cap biases etc. Funds are also modelled within Style Research prior to being purchased, and therefore it allows the team to see how any changes will affect the overall portfolio risk. Acheson - Executive Director, Bill Lambert - Director of Investment Governance, Bambos Hambi - Head of Fund of Funds, Iain McLeod - Multi Asset Investment Specialist and Debbie McKay - Global Strategic Partnerships. 1.8 Resources Bambos Hambi Head of Fund of Funds Mr Hambi joined SLI in 2011 and has 35 years of investment experience. Prior to this, and following a period where he worked as an independent consultant, he spent 5 years at Gartmore Investment Management, where he was a Partner and Head of Multi Manager. He has also held a number of senior fund management positions, including roles with Insight Investment Management, Rothchild Asset Management and Friends Ivory & Sime. The Fund Solutions Team, headed by Mr Hambi, is 10 strong and each member of the group has specific areas of specialisation and responsibility, which are detailed below. Member Name Role Responsibilities James Millard Investment Director Supports Head of Fund of Funds The group s Investment Risk team adds another layer of assessment to the process. This team work independently of the investment team and are responsible for monitoring the performance and risk characteristics of the MyFolio funds, as well as the wider SLI group. The team utilise industry standard systems which include RiskMetrics, SunGard APT and UBS Delta, to measure and monitor risk. Additionally, the Investment Governance team, which also work independently, is responsible for ensuring operationally that the investment process is managed to its specification and mandate. Another function is the SLI Investment Restrictions and Control teams. They have as their sole responsibility, the role of monitoring positions within funds on a daily basis to ensure compliance with regulatory and client driven investment restrictions and guidelines. This team is independent of the asset management divisions and reports to the Director of Investment Governance and Risk. The whole MyFolio process is overseen by the MyFolio Operating Committee. The key purpose of this committee is to establish, oversee and monitor the key strategic priorities for the operation and development of the MyFolio proposition. This committee currently comprises Rod Paris - CIO, Stephen Katie Trowsdale Matthew Webber Joe Wiggins Rickey Thevakarrunai Fund Manager Senior Analyst Senior Analyst Analyst Fund Management, Lead Analyst European Equity and UK Equity Income Lead Analyst Global and US Equity, UK All Companies and Strategic Bonds Lead Analyst Investment Grade Bonds, Absolute Return, Asia Pacific and China Equity, Property and Money Market Lead Analyst Global and High Yield Bonds, Emerging Market Debt and Equity, Absolute Return Fixed Income 13

14 Consultancy Report - MyFolio Multi Manager Funds Member Name Role Responsibilities Daniel Reynolds Mark Lane Feryal Bensalah Dee Jones Analyst Analyst Quantitative Analyst Trainee Quantitative Analyst Lead Analyst ETFs and Passives Lead Analyst UK Gilts and Index Linked securities, Japanese, UK Mid-Cap and Small Cap Equity, Commodities Quantitative Research Quantitative Research The Multi Asset Investing team is responsible for the tactical asset allocation facet of the funds. This team consists of over 40 individuals from a mixture of backgrounds. The team incorporates three key areas, namely Multi Asset/ Macro Portfolio Management, Global Strategy and Risk and Structuring. These areas are headed by Guy Stern, Andrew Milligan and Brian Fleming respectively, and all are seen as an important part of the decision making process. Board, an executive non-departmental public body established by the government to stimulate innovation in the UK. He is also a Fellow and Council Member of the Society of Business Economists, the leading organisation serving business economists in the UK. Brian Fleming - Head of Multi-Asset Risk and Structuring Mr Fleming manages assets for Group and third parties, covering numerous types of strategies including liability-driven investment (LDI) and absolute return. He joined SLI in 2002 as a quantitative analyst, working across a broad range of disciplines, including fixed-interest, equities, FX, portfolio construction and risk. Moving to the Strategic Solutions Unit in 2004, he was responsible for the development of SLI s LDI offering and subsequently the delivery of the desks multi-asset risk capabilities, to support the launch of the GARS fund. He obtained a 1st class honours degree in Mathematics with Physics at Heriot-Watt University before going on to complete a PhD in nonlinear time series analysis at the same institution. During his PhD studies, he also supported the strategy desk at SLI, developing market forecasting techniques. Guy Stern - Head of Multi-Asset & Macro Investing As Head of Multi-Asset & Macro Investing, Mr Stern provides leadership to the multi-asset and macro investment capabilities at SLI. He joined the group in April 2008 as Head of Multi-Asset Management. Since this time, he has been responsible for the day-to-day management of the MAI team that oversees asset allocation for the range of multi-asset portfolios. He has also been responsible for investment idea origination, portfolio construction and implementation. He previously worked as CIO, Multi-Asset Class Solutions, at Credit Suisse Asset Management for its UK and US divisions. He has over 30 years experience, holds a BA from Rutgers University and is a Chartered Financial Analyst. Andrew Milligan - Head of Global Strategy Mr Milligan joined SLI in Prior to this he was employed by HM Treasury, followed by Lloyds Bank, where he was an Economic Adviser. He has also held the role of International Economist with Smith New Court. In 1994 he was appointed Chief Economist with New Japan Securities Europe. He then moved to Morley Fund Management in 1996 to take up the position of Director of Economic Research & Business Risk. He is a Governing Board member of the Technology Strategy 14

15 Consultancy Report - MyFolio Multi Manager Funds 1.9 Performance and Risk Data Figure 5: Monthly rolling 3-year returns and annualised standard deviation for the MyFolio Multi-Manager fund range since launch. MyFolio Multi Manager I, MyFolio Multi Manager II, 20.0% Rolling 3yr monthly Sep 10-Dec % Rolling 3yr monthly Sep 10-Dec 15 Fund Return (% p.a.) Fund Return (% p.a.) 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% Standard Deviation (% p.a.) MyFolio Multi Manager III, Rolling 3yr monthly Sep 10 -Dec % 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% Fund Return (% p.a.) Fund Return (% p.a.) 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% Standard Deviation (% p.a.) MyFolio Multi Manager IV, Rolling 3yr monthly Sep 10 -Dec % 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% Standard Deviation (% p.a.) Standard Deviation (% p.a.) 20.0% MyFolio Multi Manager V, Rolling 1yr monthly Sep 10 - Dec 15 Fund Return (% p.a.) 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% Standard Deviation (% p.a.) Source: FE Analytics. Data as at 31st December

16 Consultancy Report - MyFolio Multi Manager Funds Figure 6: Risk and reward profile of the MyFolio Multi Manager fund range since launch. 14.0% SLI MyFolio Multi Manager Range, Risk v Reward Fund Return (% p.a.) 9.0% 4.0% MyFolio Multi Manager II MyFolio Multi Manager III MyFolio Multi Manager I MyFolio Multi Manager V MyFolio Multi Manager IV 0.0% -6.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Standard Deviation (% p.a.) Figure 7: Rolling 3-year monthly standard deviation of the MyFolio Multi Manager fund range since launch. 10.0% SLI MyFolio Multi Manager Range, Rolling 3yr Volatility 9.0% 8.0% 3 YR Volatility (% p.a.) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 MyFolio Multi Manager I MyFolio Multi Manage II MyFolio Multi Manage III MyFolio Multi Manage IV MyFolio Multi Manage V Source: FE Analytics Data as at 31st December

17 Consultancy Report - MyFolio Multi Manager Funds Figure 8: Maximum drawdown, peak to trough, of the MyFolio Multi Manager fund range since launch. 0.0% SLI MyFolio Multi Manager Range - Max drawdown weekly, Sep 10 - Dec % -4.0% -6.0% -8.0% -10.0% -12.0% -14.0% -16.0% -18.0% -20.0% MyFolio Multi Manager I MyFolio Multi Manager II MyFolio Multi Manager III MyFolio Multi Manager IV MyFolio Multi Manager V Source: FE Analytics. Data as at 31st December

18 Consultancy Report - MyFolio Multi Manager Funds 1.10 Glossary Categorisation Categorisation Type Definition Outcome Risk Based Approach Asset Allocation Asset Classes Breadth Fund Selection Approach Investment Implementation Capital Accumulation Income Capital Preservation Inflation Protection Risk Targeted Risk Targeted/Risk Profiled Strategic Tactical Constrained Diversified Unconstrained Fund of Funds (FofF) Hybrid FofF/MofM Manager of Managers (MofM) Active Blend Passive Suitable for investors who want to build up their savings and capital. Different investors will have different time horizons, from the medium to the long term, and suitability should be assessed on the basis of each investor s individual objectives, existing investments, time horizon, and tolerance for risk. Suitable for investors who seek investment income either in retirement, or perhaps to augment salary income, or to meet specific liabilities such as school fees. Suitability should be assessed on the basis of each investor s individual objectives, existing investments, time horizon, and tolerance for risk. Funds in this outcome grouping are not appropriate for investors seeking total capital security. Rather, they are suitable for investors who wish to preserve their capital but are prepared to entertain the possibility of capital loss whilst seeking an element of capital appreciation and/or income. Many managers of the funds within this category tend to invest with an absolute return philosophy. Suitability should be assessed on the basis of each investor s individual objectives, existing investments, time horizon, and tolerance for risk. Suitable for investors who seek to maintain the real value of their capital and income. Suitability should be assessed on the basis of each investor s individual objectives, existing investments, time horizon, and tolerance for risk. Funds mapped to a specific risk target. E.g. a standard deviation of 6-8.5% or a maximum capital loss of 10%. Funds designed to map specifically to a distributor or independent risk profile, e.g. DT risk profile 5, but which also have a defined risk target. Funds which generally only focus on building an asset allocation for the longer term and do not look to tactically allocate on a short term basis. Funds which not only look to position asset allocation for the longer term but also to take advantage of shorter term opportunities by implementing tactical changes. Funds which invest in a limited and fairly constrained number of asset classes. Funds which invest in a diversified number of asset classes. Funds which are highly diversified and have a relatively unconstrained asset pool. Funds which invest in other investment funds rather than directly in stocks or bonds. Funds which partly outsource to investment managers as well as investing in externally managed funds. Funds that outsource or hire investment managers to manage certain aspects of their portfolios. Funds which generally will have greater than 80% of their holdings in actively managed investments. Funds which generally will have between 80% and 20% of their holdings in actively managed investments. Funds which generally will have less than 20% of their holdings in actively managed investments. 18

19 Important Information This report is for the use of professional advisers only. It is published by, and remains the copyright of, Square Mile Investment Consulting and Research Ltd ( SM ). Unless agreed by SM, this commentary may only be used by the permitted recipients and shall not be provided to any third parties. SM makes no warranties or representations regarding the accuracy or completeness of the information contained herein. This information represents the views and forecasts of SM at the date of publication but may be subject to change without reference or notification to you. SM does not offer investment advice or make recommendations regarding investments and nothing in this report shall be deemed to constitute financial or investment advice in any way and shall not constitute a regulated activity for the purposes of the Financial Services and Markets Act This report shall not constitute or be deemed to constitute an invitation or inducement to any person to engage in investment activity. Should you undertake any investment activity based on information contained herein, you do so entirely at your own risk and SM shall have no liability whatsoever for any loss, damage, costs or expenses incurred or suffered by you as a result. The fund s prospectus provides a complete description of the risk factors. Unless indicated, all figures are sourced from Financial Express Ltd. The information in this report is believed to be reliable but its completeness and accuracy is not guaranteed. SM does not accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein.