Pendal Group's Michael Blayney (Photo: Matt Fatches)
Pendal Group's Michael Blayney (Photo: Matt Fatches)

Moving to a total-portfolio approach can bring benefits such as a new understanding of assets and how they correlate to one another, along with ideas for developing strategic asset allocation. But it can also bring complexity to investment operations.

A panel of managers who have implemented total-return strategies addressed the benefits, challenges and risks of a total-portfolio approach at the Fiduciary Investors Symposium in Victoria in November.

Pendal Group head of multi-asset Michael Blayney noted that the group ran both traditional balanced funds and total portfolio-based funds.

“From an investment strategy team or a multi-asset class team perspective, you’re always going to have a total-portfolio” approach, Blayney said. “Ultimately, it is thinking about risk and return at a total-portfolio level. The concept of total-portfolio management in many ways relates to what the rest of the group that you operate within does. Within a funds management business, you can have teams working within the individual asset classes and that’s perfectly fine, as long as what you get from those is a stream of pure alpha.”

To achieve a total-portfolio approach, managers need to be clear on the mandate, Blayney said.

“Where people often go wrong is they set up a broad strategy but then find later on that their fixed income manager was just structurally tilting to credit and called it alpha,” Blayney said. “So actually, your bond portfolio is becoming correlated with your equity portfolio. From a total-portfolio context, it’s absolutely fine to use teams that are more siloed from what we would call the total outcome, so long as their mandate is very clear and the mandate is one of pure alpha.”

Morningstar Investment Management head of multi-asset income, Brad Bugg, noted that Morningstar moved to a total-portfolio basis partly because its business became more globalised, and the firm felt it better served clients to unite the global asset teams under one portfolio.

“We run real-return or absolute-return portfolios, we also have portfolios that are diversified or typical [strategic asset allocation] portfolios, and we were finding that the building blocks that were feeding into different products were becoming increasingly different,” he said. “We were also finding that the interaction of assets amongst the different building products was quite different from the needs of the different products we run.”

By moving to total portfolio, Morningstar has become better able to leverage assets and understand how asset allocations work together, Bugg said.

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