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Asset allocation quarterly reviews

Both our WealthSelect Managed Portfolio Service (MPS) and the portfolio construction tools available through the platform provide financial advisers with access to risk-matched optimised asset allocations produced in accordance with Modern Portfolio Theory (MPT). The underlying assumptions used to produce the asset allocations are reviewed on a quarterly basis. This document summarises the review process and the latest review’s outcome.

The process

The economic assumptions that underpin the financial model behind the WealthSelect MPS portfolios, Old Mutual Global Investors Multi-Asset funds  and our investment tools are verified by Towers Watson.

Towers Watson's role is advisory and involves the production of a quarterly Parameter Review Report. The report examines the underlying assumptions used for both and, if required, recommends changes to them.

Adjustments to these underlying assumptions may then result in changes to the asset allocations for the WealthSelect MPS Portfolios, OMGI’s Multi-Asset funds  and/or those produced within the investment tools.

It is important to remember that whilst the theory and volatility targets underpinning WealthSelect MPS Portfolios, OMGI’s Multi-Aasset funds  and the investment tools are the same, the asset allocations for each may not be identical. Any variation will result from slight differences in the assumptions and how they are applied by the MPS or Spectrum fund managers and within the investment tools. Examples of these differences include:

  • Spectrum funds assume a positive impact resulting from the managers’ ability to select ‘best of breed’ managers who add alpha, ie higher expected returns.
  • Asset allocation changes are likely to be implemented less quickly for a client’s portfolio than by fund manager.
  • Rebalancing within OMGI’s Multi-Asset  funds will be daily, compared to (typically) annually for a portfolio or quarterly for our MPS portfolios.
  • The MPS Portfolios employ a dynamic approach to Strategic Asset Allocation whereas the Spectrum funds incorporate Tactical Asset Allocation.
  • A lower fee assumption for WealthSelect funds based on the negotiating power of Old Mutual Global Investors.
  • Taxation of the funds is different to the tax assumptions accounted for within the investment tools at wrapper level.

It is important to remember that the assumptions used are based on a longer-term view and may not necessarily reflect short-term idiosyncrasies of the markets. More specifically, the report covers the following:

  • The return and volatility parameters for various asset classes.
  • Correlations between returns on asset classes.
  • The risk levels for each of the ten Old Mutual Wealth risk profiles.
  • Distribution yields as a percentage of total returns for each relevant asset class.
  • The appropriate geographical splits for international equities.
  • A commentary on the rationale for any changes to parameters.
  • Implied asset allocations for each of the risk levels.

Who is Towers Watson?

Towers Watson logo

Towers Watson is a global consultancy firm, formerly known as Watson Wyatt. Towers Perrin and Watson Wyatt have recently combined in a merger of equals to form a new, publicly-listed company called Towers Watson & Co. The UK investment practice has significant experience in providing investment strategy advice to the UK's largest institutional investors. It counts among its investment clients some 40% of FTSE® 100 pension plans and many of the largest non-life insurers.

According to Towers Watson, its UK strategy team is the largest in Europe, a position they have achieved by providing market leading solutions and delivering true value to their clients. The investment strategy team numbers some 50 associates, with backgrounds in pensions, actuarial, finance and banking. This mix of skills means that they are able to advise on cutting-edge investment solutions.

Towers Watson’s investment views are developed by its Global Investment Committee, which is supported by a dedicated asset research team, and is able to benefit from the knowledge of the firm’s 75-strong global manager research team.

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