The desire to keep costs as low as possible has led to both active and passive investments being used in the construction of Royal London's six-strong Global Multi-Asset Portfolio range, says the group's head of multi-asset Trevor Greetham in this video interview.
Talking to Professional Adviser editor Julian Marr in the above video, Greetham says the portfolios' passive exposure is predominantly in equities and commodities investments whereas fixed income and commercial property are better accessed through active strategies.
"Having a disciplined process that allows you to avoid some of the blow-ups that can happen with fixed income is important," he explains. "For its part, commercial property is a very diversifying, very interesting asset class that you cannot invest in passively.
"So we have a blended approach that means the ongoing charges can come in at below 60 basis points - and including tactical asset allocation, which is again a way of adding value, without adding cost."
Asked to explain why the Global Multi-Asset Portfolio range offers income share classes rather than a dedicated income fund, Greetham argues that when many investors talk about ‘income', they really mean ‘drawdown'. "They want to take money out of their funds in order to spend it," he adds. "So we think people shouldn't worry too much about whether that is ‘natural' income from investments or capital and income combined."
Greetham also highlights a potential risk of a multi-asset income approach, saying: "If you are really desperate to find assets that can now yield you 4%, 5%, 6% or 7%, then you are moving out to some pretty exotic asset classes, such as aircraft leasing or peer-to-peer lending. We think it is much more important to come up with liquid, steady, well-diversified investments that let people take income if they want to."
Matters of governance
In matters of governance, the Global Multi-Asset Portfolio range takes its lead from its Royal London Governed Portfolio cousin, which has an independent advisory committee to ensure the construction and running of these pension funds remain appropriate for investors. "The same committee is scrutinising the Global Multi-Asset Portfolios on a quarterly basis," says Greetham. "We are answering a lot of questions and keeping them informed as to exactly what is happening."
The portfolios also operate tracking error limits, which control how much risk the management team is taking through tactical asset allocation, relative to the benchmarks. Greetham adds: "Also, because tracking error isn't the sort of thing you can see, feel and smell, we also have maximum and minimum permitted ranges for each of the asset classes.
"That way, advisers can look at the fund and see whether we are towards the top or bottom end of the range yet still have a lot of confidence that, if we are in a particular risk bucket, we are going to stay in that risk bucket."
To watch the first interview in the series, Tailoring multi-asset to your environment, please click here
To watch the second interview in the series, All assets have their time on 'investment clock', please click here
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