Diversification delivers

clock • 3 min read

INDUSTRY VOICE: Royal London's Governed Portfolios have reached their ten-year milestone. Lorna Blyth, Head of Investment Solutions, reflects on how diversification can deliver.

A multi asset centralised investment proposition (CIP)

Our Governed Portfolio range is one of the largest multi asset propositions designed for customers saving into a pension. Ten years is a big milestone and over that time we've continued to evolve the range to maximise risk and return efficiency and deliver good outcomes for customers. When you combine our ongoing governance with features such as automatic rebalancing and tactical asset allocation changes, and look through to underlying holdings across a wide range of assets and a discounted fee which can be as low as 35bps, I think this can offer value for money for our customers and advisers.

Uncertain times

2018 was a difficult year for markets and nearly every asset class lost money. This will mean some challenging conversations for advisers, particularly when there's an increasing pressure to justify the cost of advice. There will be many scenarios where the chosen CIP may no longer stack up for either the adviser or the client and in a volatile market it might be time for some advisers to review whether their solution is really meeting the needs of their clients. 

Whether multi asset portfolios made money or not will depend on asset allocation decisions. Direct property was one of the only asset classes to deliver a positive return over 2018. We hold Property across all our portfolios and over the year the Property Fund returned 5.4%, helping to reduce overall losses for our customers. Customers also benefited from our holdings in index linked gilts which were marginally positive over the year.

Managing risk

Our view is that managing risk is crucial for any CIP and we keep a close eye on our risk metrics. Our ability to manage the Governed Portfolios within their risk targets is a key benefit for our customers, ensuring the portfolios continue to deliver against their objectives. We use forward looking volatility as our key risk measure for the Governed Portfolios, and we review how this is tracking each quarter based on our updated model assumptions from Moody's Analytics. Specifically this looks at two things. Firstly, how risky, or volatile, do we expect assets to be in the future? Secondly, how do we expect assets to interact with each other, i.e. what are our expectations of asset class correlations? As our expectations of both asset class volatility and correlation change, the forward looking volatility of the Governed Portfolios also changes. Our data shows that, despite recent market turmoil, forward looking volatility has been on a generally downward trend which means we expect lower volatility in the long term and we expect lower correlation of assets, particularly across equities and property. This is a great example of why any risk targeted centralised investment proposition needs to be regularly reviewed and adapted over time. Nothing stays the same in the investment industry but we have a strong foundation to build on to ensure this proposition is enduring over the longer term.

If you'd like to find out more about Governed Portfolios speak to your usual Royal London contact or visit http://adviser.royallondon.com/adecadeofdelivering

More on Multi-Asset

Industry Voice: Welcome to MAF 2.0 — why expertise, ESG and value for money must be part of the package

Industry Voice: Welcome to MAF 2.0 — why expertise, ESG and value for money must be part of the package

To meet the evolving needs of clients, a robust multi-asset strategy must be built around three principles: investment expertise, ESG integration and value for money.

Aviva Investors
clock 15 May 2023 • 7 min read
Industry Voice: MAF Core — a multi-asset solution for multiple client types

Industry Voice: MAF Core — a multi-asset solution for multiple client types

Aviva Investors' MAF Core range is designed to appeal to a broad range of investors. Shane O’Brien introduces five client types who may find MAF Core an attractive addition to their portfolios.

Shane O’Brien, Senior Investment Director & Head of Multi-asset & Macro Investment Specialists at Aviva Investors
clock 17 April 2023 • 7 min read
The investment style filter goes beyond the usual investment styles that are widely recognised in single strategy funds, according to Scopia

Research firm launches style filters to blend multi-asset funds     

Addition to multi-asset DNA reports to support performance monitoring

Julia Bahr
clock 24 February 2023 • 2 min read

In-depth

A day in the life of an adviser: Chester-based Frederika Clay

A day in the life of an adviser: Chester-based Frederika Clay

PA hears how advisers all across the nation structure their workdays

Hope William-Smith
clock 02 June 2023 • 5 min read
How much CPD for advisers is too much CPD for advisers?

How much CPD for advisers is too much CPD for advisers?

The pros and cons of continuing professional development

Justin Cash
clock 01 June 2023 • 4 min read
May 2023: Month in review with editor Hope William-Smith

May 2023: Month in review with editor Hope William-Smith

Take a look at some of the news and feature highlights of the last month

Hope William-Smith
clock 31 May 2023 • 3 min read