Maximising client outcomes with multi-asset portfolios

21 March 2024
| By Allan Gray |
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Diversified managed funds could make an ideal addition to a managed account, as the broad toolset available to the fund manager enables them to seek outperformance and manage risk, according to Allan Gray.

Managed accounts have seen phenomenal growth within Australia and have come to dominate the multi-asset industry. Separately managed accounts saw a 34 per cent increase in funds under management in the 2023 financial year, growing from $70.6 billion to $94.9 billion.

In a conversation on Money Management’s Meet the Manager series, Chris Hestelow, investment specialist at Allan Gray, described how despite the rise in popularity of managed accounts, there is still an important place in client portfolios for diversified managed funds held either in or alongside managed accounts.  

“Some diversified managed funds have a broad toolset available to them, which can be used to manage risk and seek outperformance, but the manager has to have the remit to make best use of those tools,” Hestelow said. 

“Flexibility is key,” Hestelow said. “If you believe an active fund manager has the skill to outperform, you have to give that manager the flexibility and opportunities to make active investment decisions. Not all diversified funds can do this, a traditional balanced fund, with a rigid 60/40 split between growth and income assets, will actually be quite limited in its asset allocation. To maximise investor returns, capital really needs to flow to the most attractive opportunities, whether that’s in domestic or global equities, domestic or global government bonds or corporate bonds.”

Building a portfolio from the bottom up, using individual securities rather than a building block approach of underlying managed funds and ETFs, enables the manager to make full use of the flexibility. 

“Investing from the bottom up means the manager can analyse the entire capital structure of a business and decide which securities are most attractive, equities, bonds or hybrid offerings,” Hestelow said.

Maximising client returns is top of the list for many advisers, but managing risk is also up there, according to Hestelow. 

“Derivatives are a useful tool to manage risk at a portfolio level. You can buy an individual stock that you think shows promise, but short the market it trades in if that market is overly expensive in aggregate.

Currencies can also be actively managed. In other words, you can reduce portfolio risk, without necessarily diluting returns.” 

Allan Gray Australia runs a Balanced Fund which is a diversified managed fund investing in equities, fixed income and cash. It can also use forwards and futures. It seeks to be flexible to take advantage of the best market opportunities regardless of geographic location or asset class.

The fund’s benchmark is 60 per cent in growth assets, 40 per cent in fixed income and cash, but these parameters can vary widely from up to 90 per cent in equities and as low as 10 per cent in defensive.

Hestelow said the fund suits those investors who are looking for capital growth and income, and who have a time horizon of at least three years. 

 

Disclaimer

Intended for advisers only. Allan Gray Australia Pty Limited ABN 48 112 316 168, AFSL No. 298487. Equity Trustees Limited ABN 46 004 031 298, AFSL 240975 is the responsible entity and issuer of units in the Allan Gray funds. Equity Trustees is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT).

This information is of a general nature, doesn’t take into account the objectives, financial situation or needs of any individual and may not be appropriate for you or your client. Neither Allan Gray, Equity Trustees nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Read the relevant disclosure documents before making any investment decision. Target Market Determinations (TMDs) for the Allan Gray products can be found at allangray.com.au/PDS-TMD-documents. Each TMD sets out who an investment in the relevant Allan Gray product might be appropriate for and the circumstances that trigger a review of the TMD. Please read the Fund’s most recent Product Disclosure Statement and Information Booklet (together PDS) before deciding to invest in the Funds. A copy is available from https://www.allangray.com.au/b/forms-documents. Past performance is not a reliable indicator of future performance, and there are risks with any investment.

Our commentary on securities demonstrates the reasons for decisions made on behalf of the Allan Gray funds and our clients at the time of recording, which may change. We have tried to ensure information included is accurate in all material respects but cannot provide any guarantee that it is.

Allan Gray
Allan Gray

At Allan Gray, our investment philosophy is simple: to take a contrarian approach, apply it consistently and invest for ...

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