Equity manager Axa Rosenberg is to offer pension trustees a simplified method of core and satellite ...
Equity manager Axa Rosenberg is to offer pension trustees a simplified method of core and satellite management of assets.
The group believes that the administrative burdens needed to run such a system successfully are too great for many trustees.
Jennie Paterson, CEO of Axa Rosenberg Investment Managers, said this form of investing had become increasingly popular over the past five years as pension schemes looked for managers who could outperform the volatile UK index.
She said: "The solution that many funds have adopted is to move to a core and satellite approach, the logic being that market returns are secured by the index manager, leaving the more aggressive satellite managers to provide the added value."
Axa Rosenberg is offering an alternative portfolio management structure with a single fund manager. The service is designed to alleviate the administrative burden of managing several active and index managers. It estimates the charges should come in at around 15-20 basis points a year.
Axa looks to construct a portfolio that is effectively 72% passive and 28% active, but with very low stock specific risk to avoid exposure to the full volatility of markets. Computer modelling is then used to identify the cheapest stocks in each sector, compare earnings and optimise risk and reward calculations.
Patterson said the Enhanced Index product was designed to provide a lower tracking error but with outperformance expectations reduced to reflect the reduction in risk on the portfolio.
She added that, although the theory of core and satellite fund management sounded faultless, such arrangements posed a number of practical questions for pension funds.
These included selecting active managers who can outperform the relevant indices by a significant margin to justify the additional fees and ensuring that different fund managers had a clear rationale with which to produce non-correlated returns.
The forces at play in investment - most obviously, regulatory change, uncertain markets and shifting demographics - are as strong today as they were when Professional Adviser launched its sister magazine Multi-Asset Review in 2017.
Regulator has visited some firms already
Platforms react to Fidelity blocking Income Focus purchases
Chris Hill's letter to Treasury
Cash balance surges