Last week Ben Gilbert, Senior Associate Partner and Manager of Sarasin & Partners Model Portfolios joined Citywire New Model Adviser's A-Z model portfolio panel.
From inflation to the role of passive funds in model portfolios, here are some of the key points discussed.
What role do model portfolios play and how do you determine which model portfolio is right for a client?
Model portfolios offer advisers and their clients an all-in-one solution to asset allocation, fund selection and risk management. In providing an actively managed long-term investment solution, they allow advisers to focus on their client’s financial planning and answering the more strategic questions. When it comes to understanding which portfolio is right for which client, that’s a decision that sits with the advisor and their client. Here, an investment manager's role is to focus on the investments themselves, aiming to deliver the best risk adjusted returns in line with each model’s pre-determined risk budget.
Is there a role for passive funds in a model portfolio?
Passive investments often have a place in model portfolios but as with any investment, so long as they contribute towards the overarching investment performance and goal. While many see active funds as the key to long-term outperformance, passive investments often allow investment managers to take advantage of shorter-term market opportunities. On the whole passive solutions are seen as a complement to an active strategy.
What does ESG integration in model portfolios look like?
ESG integration within model portfolios should be no different to any other ESG portfolios – requiring active engagement with companies and third-party fund managers to ensure businesses and investments are being managed responsibly. For direct equities this involves closely monitoring investee companies and engaging with management on issues of concern and voting on matters put to shareholders. For third-party fund managers, this means ensuring their approach to responsible investing is equally as integrated – how do they assess companies on ESG criteria, how to they engage with companies and challenge where needed, how do ESG findings impact stock selection?
To see how we integrate ESG, take a look at our Responsible Model Portfolios.
Are you concerned about inflation and how is that impacting portfolios?
The panel agreed that while expectations are for an inflation bump over the next few quarters, over the longer-term things will likely settle down. Inflation is expected to be most pronounced as economies reopen, the base effects of last year take affect and supply chains in some sectors are squeezed.
To protect against inflation, the panel agreed being over overweight real assets was key, with returns underpinned with government’s fiscal funding. Asset allocation was also discussed in the context of risk and return and that against a backdrop of slowing global growth, investors will need to be prepared to increase their risk exposure.
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