If a major threat emerges in the next 6- to 12-months, we’ll take risk off the table and we’ll be very public about why we’re doing it. In the shortterm, our clients may underperform our peers, but if things go pear-shaped again, then our clients will fare relatively well. “Second, we’re not going to do TAA [Tactical Asset Allocation] each month … to me that’s a mug’s game. It’s very hard to do. It will cost clients more [because] I’ll add more risk to the portfolio, but I can’t guarantee to add one basis point.” If MLC occasionally sees an opportunity or a threat, Parker and his team will act. “It’s what we call strategic overlay. If we don’t see any threats or opportunities, then we’ll stick to our strategic benchmarks.
We’ll review them in the normal way, but we’re not going to be tinkering. “It’ll be a challenge to communicate that with clients and advisers. In the past, it’s sounded like a cop-out to say ‘we identified these problems, but we didn’t do enough about it because we’re still being assessed on the rolling 3- and 5-year numbers’. “Now we need to be braver and back our judgement when people point the finger and say you’re underperforming.” Parker said there were two extremes in assets: short-term tactical asset allocators, which were almost like a proprietary trading desk, and the other extreme of the set-and-forget strategic allocation. “We’re in the middle. We’re daring to see the wood for the trees.
We’re not going to get out there and claim we have any great insight into timing because, frankly, very few people do.” The challenge was to persuade investors to value risk management instead of focussing on the return. Not risk-avoidance, not risk-seeking, but risk management, Parker said. MLC’s product disclosure statements now give asset allocation ranges of plus or minus 5 per cent. “We’ll take risk off the table if we see risk, or add some money if we see opportunity,” Parker said. “We need flexibility, but our products also still have to be true-tolabel. An 80 per cent equities allocation product is not going to have an actual 50 per cent equities allocation.” When Parker was on JP Morgan’s asset allocation committee in Melbourne, he “proudly described it as the laziest [asset allocation] committee in the industry because we’d meet reluctantly and infrequently,” he said.
