The worst year of my life was probably 2012 — not because the Mayans had predicted that the world would end on 21 December that year, but because I was diagnosed with an illness that was having a serious impact on my everyday life.
I had just graduated from university and was ready to embark on the next stage of life, yet fate had other plans. I contracted Behçet’s syndrome, which the National Health Service describes as a “rare and poorly understood” condition.
There are absentees from many portfolios, due to their lack of presence in proprietary asset allocation tools
One of the consequences of the illness was an impairment of my cognitive abilities, which affected how I would usually think about and tackle certain situations. In particular, I became quite narrow-minded. I did not like trying new things: new experiences, new food or even new TV shows. It took me a lot longer to get into Game of Thrones than it did the average Westeros fan.
Once I had started to recover and my mind wanted to try new experiences again, I realised what I had been missing out on during that period. Most importantly, I discovered how being narrow-minded towards the variety of life can really weigh on one’s experiences.
Limited product range
Certain asset allocation model services may be guilty of being narrow-minded. And, if they are, does that not translate to financial advisers limiting the investment products available to their clients?
Andy Merricks too believes it is time to rethink asset allocation models
After reading a piece written by Avellemy chief investment officer Graham Bentley for Money Marketing, I questioned the open-mindedness of asset allocation tools.
Bentley speaks of the perils of advisers using external sources of asset allocation services, and how providers need to offer “the widest range of investment opportunities”.
He states how portfolio construction is often “overlooked by many asset allocation providers and, sadly in some cases, the regulator”. He adds that no asset should be “evaluated” in isolation but rather in terms of its “potential impact on portfolio behaviour”.
It is not just EM that is being sidelined due to asset allocations
Bentley points out how emerging markets (EM) have enjoyed a strong start to 2023, and a Bank of America survey of global fund managers has noted a step away from US equities and cash in favour of EMs, the EU and UK. Despite this, “many asset allocation tools will be less forthcoming enlisting the EM equity asset class”, he explains.
Additionally, proprietary portfolio asset allocation tool outputs tend to be hampered, he says, “by the provider, to omit particular asset classes deemed to be disagreeable”.
Denying opportunities
Bentley adds that most advisers do use external sources of asset allocation services, so they are vulnerable to this narrow-minded thinking. By using these tools, he says, advisers “are denying clients opportunities”, and it is harder to explain why EMs are in a client’s portfolio than to explain why they are not.
Merricks says thematics often get overlooked although they have huge potential
As asset allocation can be complex, many advisers would rather use a third-party provider than do it themselves and risk getting it wrong, he says.
Still, it is not just EM that is being sidelined due to asset allocations.
He observes that alternatives, absolute return, commodities and thematics are other examples of absentees from many portfolios, due to their lack of presence in proprietary asset allocation tools.
IDAD portfolio manager for the Future Wealth Fund Andy Merricks was pleased when he read the Bentley article in Money Marketing. He too believes it is time to rethink asset allocation models.
After reading a piece by Graham Bentley, I questioned the open-mindedness of asset allocation tools
Merricks explains that thematics often get overlooked although they have huge potential. He likes to invest in thematic exchange-traded funds, in contrast to individual stocks, as “it is more likely that the portfolio will contain the winners while reducing exposure to the ones that don’t make it, rather than being all into a particular exponent”.
The Cambridge dictionary defines being narrow-minded as “not willing to accept ideas or ways of behaving that are different from your own” — which sounds like a bad attitude to have in every part of life.
Darius McQuaid is a reporter. Contact him at: darius.mcquaid@moneymarketing.co.uk
This article featured in the May 2023 edition of MM.
If you would like to subscribe to the monthly magazine, please click here.
