Model portfolios for planners have been around a long time but implementation issues, as well as the ability to get first-mover advantage with new funds, are becoming increasingly important, according to Russell Investment Group.
Peter Gunning, Russell’s chief investment officer for Australasia, told the FPA conference last week that, due to increasing sophistication among retail investors, model portfolios needed to provide more than just manager selection and portfolio construction if they were to perform over the long term. In addition to a basic portfolio set up, there were four key elements to ensure ongoing performance: . the ability to identify new managers . specialist rebalancing and implementation techniques . the ability to hire or fire managers at the right time, and . the ability to innovate, such as through the use of alternatives. Gunning said: “We’re saying to planners, consider your portfolio offering because these drivers are happening worldwide – they’re not going to go away. They’re only going to get stronger… “We see ‘fully implemented’ model portfolios as a key element of financial planning practices that want to evolve and grow.” He said Russell’s research showed that the “opportunity set” for managers had changed dramatically over the past few years. It was now quite difficult for a traditional Australian equities strategy to outperform the market. “This means investors and planners need to look to more specialist equities managers, such as boutiques or larger managers offering specialist strategies, such as small caps, high-conviction portfolios or long/short strategies… “The use of alternative assets such as global property and private equity are also now increasingly considered as part of an overall portfolio structure, to achieve the best risk/return outcome.”
A managed investment scheme holding 20 per cent or more in unlisted assets is deemed an illiquid scheme and is restricted from providing frequent liquidity, but there is no formal limit on how much super funds can allocate to these asset classes. The Conexus Institute writes this is a special privilege given to APRA-regulated super funds that should not be taken for granted.
David Bell and Geoff WarrenFebruary 6, 2025