Chee says markets are going to be mispriced from time to time, since nothing ever sits at fundamental value, and funds should act to capitalise on that. “We think investors can take advantage of medium-term pricing over a three-to-five-year timeframe and generate excess returns in that way,” he says. “It’s a three-step process. Assess the economic trends; assess fundamental value; and then assess whether the deviation between fundamental [value] and market pricing is sufficiently large enough that you have confidence that you can take a DSAA position within your portfolio. In that regard we see DSAA as high conviction, relatively low frequency events.”

Seizing the DAA

Asset consultants are keen to stress that the evolution of DAA is not an exploitation of the events of 2008, although it’s unlikely that none of the proponents is motivated by financial incentive. Most claim to have been giving clients DAA-type advice for a number of years and say the recent promotion of the service is in response to client demand for a formalised DAA framework. JANA Investment Advisers, for instance, is probably most recognised for encouraging client funds to make significant shifts in asset allocation, often against the trend of peer funds.

It was well underweight international shares, for instance, in the late 1990s and the funds wore some pain before the tech bubble burst and the decision was finally vindicated. It has also advised against any listed property trusts for the past seven years. “We have always done it,” says Ken Marshman, JANA’s head of investment outcomes, “it’s more a matter of terminology”. However, for some time now, consultants have been on the back foot as super funds have built bigger in-house investment teams and moved away from the traditional retainer model towards specialist consultants, often assembled into panels and paid for one-off projects.

As funds increase in both size and sophistication, they are increasingly looking for specialist knowledge, and consultants have come under pressure to revamp their advice offerings to cater to this trend. The advent of DAA as a new asset allocation tool provides an opportunity for consultants to reaffirm their role as holistic adviser. JANA’s Marshman, says investors need to be wary of “fad diets”. DAA had a bit of a flavour about it of being a fad that would save investors in the future, because it would have in the recent past, he says.

“Investing is about having a balance of views. If you concentrate on one aspect you can avoid seeing the big picture and the new opportunities. (DAA) is just one of the tools in the armoury of sensible investing,” Marshman says. “Investing is about finding opportunities and avoiding risk. None of this stuff should be a religion. You don’t have to do something every day. Frontier’s Trafford-Walker believes some firms have responded to DAA from a business imperative perspective, but says the renewed focus on asset allocation is a welcome development.