Our managed portfolio service is ‘risk bound’. This means that the service is made up of a group of models, each aiming to achieve long term capital growth while targeting a certain level of risk. We do this by aligning our models to risk profiles as defined by Dynamic Planner.
Dynamic Planner is a multi-award-winning risk profiling service. While there is no person, system, or process in the world that can 100% guarantee the exact risk or reward that will come from a given investment decision, there are services designed to help with anticipating the most likely highs and lows to be expected from a particular fund (or group of funds). The most widely used risk profiling and asset allocation service in the UK is Dynamic Planner.
What is risk profiling?
For investment funds, risk profiling is the process of analysing and categorising a given fund against set criteria like volatility (the rate at which unit value goes up or down) against sector benchmarks and determining the level of investment risk it represents for investors. This approach makes it possible for a financial adviser to assess the suitability of a fund (or collection of funds) for investors.
“Accurate risk profiling results in a greater likelihood that clients will meet their long-term financial goals, but also that in a market downturn they will be comfortable with any short-term falls in value.”
Dynamic Planner website, September 2022
Dynamic Planner’s fund risk profiling process is driven by rigorous analysis of the underlying asset mix, considering factors like the flexibility of the investment mandate, monthly trend analysis, and observed performance. Every quarter, their risk profiling team carefully review the latest data to ensure the original risk profile assessment remains accurate.
Strategic asset allocation
There are two kinds of asset class: growth and defensive. While growth assets are investments that have the potential to gain higher returns over time, they also tend to be higher risk. Conversely, defensive assets carry lower levels of risk, but typically offer lower returns for investors.
Strategic asset allocation is the distribution of different asset classes within a given investment model. This process balances the risk and return across the entire combination of funds and asset classes that make up the portfolio.
Because different asset classes behave differently across sectors and in different market cycles, our approach to asset allocation is centred on diversification. This means including a combination of asset classes, with the aim to offset potential underperformance by one asset class against an uncorrelated, higher performing asset class.
Using 2,400+ covariance correlations, the Dynamic Planner Asset Allocation Model assesses any combination of asset classes to determine a model’s suitability for investors in the corresponding risk profile. Their measure of anticipated risk is quantified using a scale from 1 (lowest) to 10 (highest) and their Asset Allocation Model also measures risk using the same scale.
Each of our models was built to align with the corresponding Dynamic Planner risk profile. However, as the selection of funds that make up the models change, the risk-profile can change too. To ensure that fund switches and market conditions don’t alter the overall risk ratings of our models, asset allocation data is submitted to Dynamic Planner for monthly review. Any adjustments that need to be made to the models are actioned accordingly by the portfolio managers.
Introducing the CleverMPS
Together with Marlborough Investment Management (Marlborough), we provide two managed portfolio services – CleverMPS Core and CleverMPS Sustainable. Each service boasts a range of risk-rated models designed to suit the differing needs of investors and their varying attitudes to risk.
The Core MPS is comprised of 6 models (aligned to Dynamic Planner’s risk ratings 3 – 8) while the Sustainable MPS has 5 models (aligned to Dynamic Planner’s risk ratings 3 – 7). The models are available for investment via a professional on a range of platforms. You can find out more about our MPS solutions here.
Author: Holly Helps, Marketing Manager