Multi-asset investing should be about achieving the best return for a client's tolerance rather than letting the "risk tail wag the dog", argues RLAM head of multi-asset Trevor Greetham in this video interview.
Talking to Professional Adviser editor Julian Marr in the above video, Greetham (pictured) dicusses how to go about configuring portfolios so they match different risk appetites.
One of the benefits of multi-asset, he argues, is the ability to create a range of portfolios to suit different risk appetites through "quite marginal changes" in the proportions of "the riskier growth-seeking assets and store-of-value assets".
Greetham continues: "This means you can design a range that goes from relatively low risk to quite high risk appetite funds - but in a graded way that means neighbouring funds have a very similar kind of outcome for clients."
To that end, he explains, Royal London Asset Management (RLAM) has, in conjunction with Moody's, designed six different benchmarks that are used with the firm's Global Multi-Asset Portfolio range - "going from what is basically a strategic bond fund through four multi-asset funds to a pure equity fund".
Asked what specific tools he and his team use to manage risk, Greetham stresses they are not making risk-targeting decisions on a day-to-day basis.
'A better place'
"When we move into or out of an asset class, it is purely based on whether we think it is a better place to be over the next six to 12 months," he explains.
"On a day to day basis, what we are doing then is looking at the positions we are taking relative to the strategic benchmark, looking at our tracking error and judging how far away we are from that central position.
"Investors have bought a particular fund and therefore expect a particular level of risk. We do not want to undershoot or overshoot too much but we don't want the tail to wag the dog either. It is about getting the best return for that risk appetite rather than just risk."
To watch 'Multi-asset in retirement planning', please click here
To watch 'Grading multi-asset portfolios to match risk appetite', please click here
To watch 'Diversifying to counter market shocks', please click here
To watch ''Clocking' different stages of the economic cycle', please click here
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