In the world of investment, an MPS is a managed portfolio service – sometimes known as a model portfolio service. Many financial advisers recommend managed portfolio services to their clients because of the value and quality of service they provide for investors.
Managed by specialists, an MPS is usually comprised of five or six investment portfolios, or ‘models’. These models are centrally run investment portfolios, made up of a range of holdings that are identical for all investors.
Who are MPS models made for?
Models within a given MPS will be built and managed in line with a set goal (or goals). The objective is usually to deliver long term capital growth while meeting the needs of a specific investor profile. Across the MPS market, you will see that investor profiles are most commonly defined by attitudes to risk and capacity for loss. Because of this, services tend to comprise of models that range from lower to higher risk levels for investors.
“Services tend to comprise of models that range from lower to higher risk levels for investors.”
A financial adviser will assess a given client’s attitude to risk and capacity for loss, and consider their investment objectives and experience, as well as the length of time over which they wish to invest before deciding whether a particular MPS is right for them. As time goes on, their adviser will re-assess their needs and may recommend moving to a higher or lower risk alternative.
MPS models are managed by a portfolio manager (or portfolio management team) who make all the investment decisions – which funds they should buy, hold, and sell to meet the overall goals of the service.
What are funds?
A fund is essentially a collection of investments, built and curated by a professional fund manager. Instead of putting capital into just one company, bond, or property, a fund will spread investment across a range of industries, geographies, and (usually) asset types.
A fund’s investors each own a portion of the underlying investments. That means they stand to gain a smaller return from each investment, but the risk is also spread. Reducing exposure to one particular asset or risk by holding a variety of investments is commonly known as diversification.
“Reducing exposure to one particular asset or risk by holding a variety of investments is commonly known as diversification.”
When you invest in a fund, you are allotted a number of units relative to the amount of capital you put in. In the same way that company shares work, units are your portion of the overall pot. As with all investments, there are dealing fees and other costs to consider. One reason that funds are a popular choice is that those fees are also split between all the investors.
Now, imagine a collection of collections or a ‘fund of funds’. This is what you can invest in with a managed portfolio service (MPS).
Understanding MPS investment strategies
When reviewing the many MPS options in the market, one notable feature will be the overall investment strategy – be it Active, Passive, Blended or Agnostic.
With an Active strategy, portfolio managers will invest in funds that aim to generate returns exceeding a given benchmark or index. A Passive strategy means investing in funds which attempt to track the benchmark or index (gross of fees).
A Blended strategy allows a portfolio manager to invest in both Active and Passive funds. This increases the number of funds overall that can be chosen for inclusion the models. As the name suggests, the overall investment pot must be a blend of the two types. This last factor is what differentiates a Blended MPS from an Agnostic service.
An Agnostic investment strategy offers even more freedom for portfolio managers. Like a Blended service, the funds available for inclusion are increased, but a manager is never limited to including a combination of fund types. If they decide that the best options for their models are all Active (or all Passive), they can invest as they see fit.
Author: Holly Helps, Marketing Manager
Introducing the CleverMPS.
If you think a managed portfolio service may be the right choice your clients, check out the CleverMPS. The Core MPS range and Sustainable MPS range are available for investment via professional investors on a range of platforms including Quilter, Fidelity International, abrdn Wrap, Morningstar Wealth Platform, and Aegon ARC.