Van Eyk Researchhas released its annual review on the balanced fund sector, finding an increase in managers adopting tactical asset allocation (TAA) strategies as well as allocating sector assets towards international equities and taking on a benchmark allocation for alternative assets.
The review also ranked balanced fund managers, with the van Eyk group handing out a rating to 24 different funds management groups.
Of that number only one was given van Eyk’s highest rating, AA, while nine were rated as A, eleven as B and three more placed on hold. One further manager declined to participate with van Eyk not releasing to the public the names of the managers.
The rankings are created via a combination of van Eyk sector ratings, tactical asset allocation methodology, performance attribution, and compatibility of the underlying portfolio with respect to benchmark indices.
Van Eyk Research senior portfolio manager Dr. Peter Smith says the survey aims to help planners choose a balanced fund manager. He says it is often more beneficial for planners to use a single balanced fund rather than trying to create a balanced strategy by combining specialist managers due to the cost of entry and management fees when combining different funds.
“We find that financial planners have well developed expertise in relationship building and management skills, but when it comes to asset allocation many either don’t have the resources or the experience to make decisions on a portfolio basis,” Smith says.
While reviewing and ranking the managers, van Eyk found that around half of the fund managers using TAA add value and that the strategy was used to reduce volatility in the fund.
Smith says the TAA strategies that were more successful were those that adopted a simpler approach, with a small number of decision makers involved in the investment process.
“Consensus decision making TAA teams were the least successful largely due to compromise in decision making regarding asset class weightings, and complex TAA models tending to be less successful. We found simple models that predict broad trends in asset classes produced better returns with comparatively lower risk,” Smith says.
However Smith says a number of the managers in the review had appointed a TAA strategist to oversee allocation decisions made by investment committees in order to redress the sometimes damaging compromise typical of investment committees.
