Multi-Asset

BMO Universal Multi-Asset Portfolio Range 1st Anniversary

Active benefits 1 year on
November 2018

Risk Disclaimer

Please note that this is a marketing communication and does not constitute investment advice or a recommendation to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. Views are held at the time of preparation.

Past performance is not a guide to future performance. Stock market and currency movements mean the value of investments and the income from them can go down as well as up and you may not get back the original amount invested.

  • 1-year anniversary for the BMO Universal MAP Range
  • Ranked 1st, 2nd and 3rd over 1 year in the IA Volatility Managed Sector since launch (9 November 2017)*
  • An eventful 2018 so far for economies and markets
  • Adding value with active management
  • The outlook is reasonable but risks need to be managed

When it comes to investing we believe that it makes sense to think actively – a view that helped shape the development and subsequent management of our BMO Universal Multi-Asset Portfolio Range. The portfolios are built around long-term principles like diversification, overlaid with an active approach to asset allocation, stock selection, risk management and other components of the process.

The last 12 months have served to underline the potential importance of such thinking and in the last year – an eventful and challenging one – being active (in the right way) has certainly proved effective in three key ways.

* Source Lipper IM, net of fees in sterling as at 10 November 2018.

Risk Disclaimer

Please note that this is a marketing communication and does not constitute investment advice or a recommendation to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. Views are held at the time of preparation.

Past performance is not a guide to future performance. Stock market and currency movements mean the value of investments and the income from them can go down as well as up and you may not get back the original amount invested.

We think it makes sense to think actively – a view that helped shape the development and now the management of our BMO Universal Multi-Asset Portfolio Range.

Paul Niven, Head of Portfolio Management, Multi-Asset Solutions

Strategic thinking

 
At BMO Global Asset Management our strategic positions are reassessed quarterly. This is more frequently than many of our peers and we make judgments from what we think is the most pragmatic viewpoint – a global one.

In the last year we have been at the top end of our equity allocation limit and within this an emphasis on the US has been positive in a period in which the US stock market has reached all-time highs. We have also been active in making other geographic adjustments as part of our quarterly assessments. Early in 2018 we judged UK shares to be undervalued as a result of Brexit-related uncertainty and significantly raised exposure. An increased weighting added value as they bounced back during the second quarter thereby allowing us to take profits. Had we been reviewing positions on a less frequent basis this opportunity may have passed us by.

Use our handy glossary to look up any technical jargon you are unfamiliar with.

Oversold UK shares provided an opportunity

Source: Lipper IM

Talking tactics

 
Shorter-term tactical adjustments play a key role. Yes, the impact of short-term fluctuations will fade over time but there is still plenty of scope to accrue gains for the long term by navigating short-term risks and harnessing opportunities as they arise by being nimble. As mentioned above, we have been overweight the US – a position afforded by the relative avoidance of the emerging markets (impacted by US$ strength and rising US interest rates) and Europe (political uncertainty) – but even here it has made sense to think tactically. In September, we judged it prudent to take some profits and added protection in the form of options on the S&P500 index – a move that offset some of the losses that equity markets experienced in October.

US stock market outperforms

Source: Lipper IM

Hands on stock selection

 
A third source of added value has been the returns generated by our stock pickers. We are looking for two benefits from the use of active managers – incorporating their risk management into our portfolios and an increase of returns above their respective benchmarks. Thus far they have certainly delivered on their return mandate with strong outperformance from both our UK and global teams, showcasing their ability to deliver performance even through volatile markets.

Risk management can come in many forms and over the past 12 months our managers have been able to avoid a number of headline risks by not having exposure to companies such as Carillion. By carefully selecting individual stocks and actively tilting their portfolios between sectors and factors they also managed to shelter the portfolios from the worst of the losses seen in October’s sell off.

Our view is that higher volatility is likely to persist and if that is the case then talented active managers are arguably better placed to deliver alpha by picking winners and avoiding losers.

Volatility has picked up – good news for active managers?

Source: Lipper IM, rebased to zero for illustrative purposes

Performance delivered with effective management of risk

 
With a year under our belt we are really pleased with how the three funds in the range have performed. Each has delivered a positive return and they have stacked up well relative to similar risk targeted offerings irrespective of whether they are being managed actively or passively. As at 9 November 2018, the Growth, Balanced and Cautious Funds were ranked 1st, 2nd and 3rd in the IA Volatility Managed Sector over 1 year.**

Past performance should not be seen as an indication of future performance. A key driver of this success has been active risk management. Having an emphasis on taking appropriate risk at all times we have also managed to protect investors from significant losses. The adage that the best way to make money for investors is not to lose money is even more appropriate in volatile times.


 

Whilst the performance of the BMO Universal MAP Range since launch is extremely encouraging, we recognise that it is important to consider a longer-term perspective. With that in mind we have conducted some long-term back-dated analysis of the funds including indications of the impact of tactical asset allocation decisions made by the team. If you would find this information useful, please get in touch with your usual BMO Global Asset Management representative.
 

Where from here?

 
As we look forward we continue to believe in the merits of active investment, and against a backdrop of relatively benign inflation and decent growth the prospects for equities remain brighter than those for bonds where we have concerns over valuations. But it also makes sense to acknowledge the risks that do exist and actively seek to mitigate them. Beyond asset allocation, the environment looks set to favour active stock pickers.

For the product suite itself our ambition is to offer advisers high quality solutions with which to help clients achieve their investment goals. In doing so we recognise the array of individual circumstances and objectives facing advisers and as a result, are looking to expand the suite across a broader range of risk profiles, thereby making it applicable in even more planning scenarios. Stay tuned for more details.
 

At a glance

 

  • Three portfolios: Cautious, Balanced and Growth
  • Risk-controlled return: CPI+ expectation
  • Cost focused: 0.29% capped OCF
  • Active: combining strategic and tactical asset allocation, and stock selection

 
To find out more, view our Universal Multi-Asset Portfolio range page.