When asset selection goes granular – and when it doesn’t
Mine Super senior investment analyst Robert Graham-Smith said his fund used its internal expertise to create a more tailored approach to portfolio construction.
Speaking on a panel at the Fiduciary Investors Symposium in the Blue Mountains in May, Graham-Smith said this has allowed the fund to be more granular about its asset-class buckets. It now has about 45 sub-sleeves, rather than broad asset classes.
“Because we had taken on the internal process of asset class and market forecasting, we were basically able to form our own expectations and could try to quantify the benefits of doing this slightly differently,” Graham-Smith said. “What it’s resulted in is new portfolios and a much more granular approach to asset allocation. So, for example, in our growth portfolios, we can target more growth allocations at the sub-asset class level.
“The benefit is we’re much more integrated as investment researchers. We’re much more active in terms of forecasting, modelling returns on a forward-looking basis, improving those forecasts, looking for data and discussing it from an asset-allocation perspective.
“It works across the whole team and is a very collegiate approach.”
He added that Mine used to have generic super options but in this new format can create greater customisation.
Colonial First State head of investments Scott Tully said his fund’s strategy did not involve that same granularity. To illustrate this, Tully explained that Colonial First State questioned how it could build portfolios specifically designed for accumulation members in life stage funds.
“Where we’ve ended up is actually having managers that are broader than in the traditional multi-manager strategy,” he said. “We’ve given quite broad mandates because we’re not building those underlying buckets for investors. What we’re building in our life-stage funds is that total holistic portfolio.”
Lonsec Investment Solutions chief investment officer Lukasz de Pourbaix said his company constructed portfolios within a managed account framework and was also trying to be less granular by using a more functional approach. The three important components for Lonsec are beta exposure, risk control and high alpha, de Pourbaix said.
“We really want to understand what the functions of different components of the portfolio are,” he explained. “We tailor that depending on the risk of the profile we’re working within for the various portfolio structures.”