Why it’s time to rethink client goals

Alex Burke,  Senior Writer,  No More Practice Education

What is the key goal one needs to achieve when building a multi-asset portfolio?

After a period of consideration, Morningstar Investment Management head of multi asset investment Brad Bugg decided there's no single answer.

Speaking at the IMAP Adviser Roadshow in Sydney, Bugg acknowledged the “end objective is going to be different each time.” Having said this, there are some key considerations to make, especially in light of prevailing economic circumstances.

He said that while there's “no single asset class that can achieve your goals,” fixed income is a solid foundation. But even if it's the closest in terms of consistency and reliability, it's still preferable to “blend asset classes together.”

“Fixed income is a fantastic starting point,” he said, “but it's not what you want to constrain yourself to.”

Anne Anderson, head of fixed income and investment solutions, Australia at UBS Asset Management expressed similar thoughts to us recently, saying: “I think it's an important part of a diversified portfolio. It provides a level of security; a level of liquidity and it gets people more definite source of return over time.”

This is especially the case for clients approaching retirement when consistency of return is especially important. “People tend to increase the amount of money they have invested in fixed income as they near retirement and then into retirement,” Anderson added.  

Bugg noted that over time, “so-called ‘income outcomes vary significantly.” In order to shore up that steady return, and he pointed to assets like listed property and global infrastructure.

Crucially, though, allocation to these assets needs to be flexible. To illustrate, he pointed to the allocations into the Morningstar Diversified Income Managed Account. In February 2016, it had a 33.76% allocation to cash, a 21.28% allocation to bonds and a 12.8% allocation to Australian property.

By February 2019, those numbers had shifted to 26.62%, 16.83% and 1.61% respectively.

He concluded by saying this demonstrated two things: one, that all blended portfolio achieves more consistent returns than a heavily concentrated one, and that a flexible approach will further shore up the consistency of return.


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