• Academic studies highlight the importance of asset allocation with many suggesting the type and proportions of assets held in a portfolio are responsible for a significant proportion of its long-term performance.

    But what is a suitable asset split? Different asset classes behave in different ways – a fact that means the manner in which you combine them can significantly affect not just the performance potential of a portfolio but also the way it behaves.

    Detailed analysis of past performance and its characteristics can really help in facilitating the creation of a portfolio mix likely to behave within reasonably well defined parameters – and one that gets reasonably close to the ideal balance between performance and risk. It’s this process of analysis, modelling and subsequent asset split recommendation that underpins the concept of risk-targeted funds like the Lifestyle range.

    Model portfolios

    CM14455 Asset allocation chart
      Volatility bands and asset allocation models are reviewed quarterly. If appropriate the asset mix of the Lifestyle Fund is changed to ensure it continues to meet its objective. 

    The benefits are obvious. For advisers they provide consistent propositions that can easily be aligned with defined client types; and assuming no change in client attitude to risk remain suitable at the outset and for the duration of an investment. This alignment is obviously beneficial for the client too as the asset mix they hold is one that is suitable for their needs – a peace of mind investment that shouldn’t throw up any nasty surprises. Distribution Technology reviews the asset allocations for each risk profile quarterly. The asset allocation table below is as at 1st July 2018.

      Lifestyle Foundation

    profile 3
    Lifestyle Defensive

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    Lifestyle Cautious

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    Lifestyle Balanced

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    Lifestyle Growth

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    UK Equity 14.0% 19.0% 26.0% 31.0% 35.0%
    European Equity


    4.0% 5.0% 5.0% 5.0%
    North American Equity 6.0% 10.0% 12.0% 9.0% 7.0%
    Japanese Equity 2.0% 4.0% 5.0% 5.0% 5.0%
    Pacific Ex Japan Equity 0.0% 4.0% 5.0% 10.0% 16.0%
    Emerging Markets Equity 0.0% 0.0% 5.0% 11.0% 17.0%
    Property 8.0% 8.0% 7.0% 5.0% 5.0%
    Gilts 14.0% 8.0% 5.0% 0.0% 0.0%
    Index Linked Gilts 7.0% 5.0% 0.0% 0.0% 0.0%
    UK Corporate Bonds 23.0% 24.0% 24.0% 19.0% 5.0%
    International Bonds 9.0% 3.0% 0.0% 0% 0%
    Global High Yield Bonds 5.0% 6.0% 6.0% 5.0% 5.0%
    Cash 10.0% 5.0% 0.0% 0% 0%

    Optimising portfolios over the short term

    These strategic asset allocations are designed for the long term. However, short-term market developments can create opportunities (or threats) for a portfolio and our asset allocation process is flexible enough to respond to this.

    Within each Lifestyle Fund, the managers can tilt away from Distribution Technology’s allocations for each sub-asset class by +/- 5%, while still remaining within the volatility bands – and therefore risk profiles - for the models. This enables them to tilt the portfolios towards investment styles more suited to benefit from prevailing market conditions.