Tracking the performance of discretionary fund managers (DFMs) has long been a challenge for advisers due to the lack of available data.
Two sets of indices – one of which is the four private client indices (PCI) run by Asset Risk Consultants (Arc), which gathers data from around 50 investment houses – can provide some insight for advisers when turning to DFMs on behalf of their clients.
Each of these indices is named after its risk profile relative to equity markets, with the Arc Sterling Cautious PCI generating an annual rise in 2015 of 1.3 per cent, below the increase in the Balanced Asset, Equity Risk and Steady Growth indices, as expected.
The Arc Sterling Steady Growth PCI recorded the best discrete annual performance of the four indices last year, rising by 2.3 per cent.
The range of increases in the FTSE WMA indices is similarly narrow. But one-year cumulative performance figures to May 12 2016 indicate investors would have been better off in the FTSE WMA Stock Market Conservative index, which was up 1.8 per cent, while the so-called ‘Growth’ index was down 1.6 per cent, data from FE Analytics shows.
Guy Stephens, managing director at Rowan Dartington Signature, says: “Performance is polarised at the moment with such disparity in markets over the past two years, with the fall in the oil price and weakness in commodities catching some out. Where we go from here is quite a challenge, but the fundamentals don’t support a rebound.
“Using a good DFM will definitely have helped the adviser in recent times. We were able to underweight the energy sector, but then to close this in mid-February when the markets were briefly becoming hysterical. This is when being nimble adds value without having to refer to clients for approval.”
Christopher Aldous, head of distribution at Charles Stanley, notes. “Performance has certainly been an issue in 2016 in a generally weak environment for equity markets. This is arguably a near-term phenomenon, but there is no question that providing good service and working hard at client relationships is even more important when returns are poor.”
Mr Aldous believes equity markets in the UK have suffered from uncertainty surrounding the EU referendum set to take place on June 23, which has also weakened sterling.
But he adds: “These two factors alone have offered opportunities to investors that, arguably, a DFM should be well-placed to take advantage of on behalf of its clients.”
In its May 2016 performance report, Arc observes: “After a tough year in 2015, when private clients saw their investment portfolios deliver returns in line with or below inflation, 2016 began with a few market commentators predicting a financial market tempest.
“The answer for most private client investors is to invest with discretionary managers who adopt a multi-asset class approach to investing, with the intention of smoothing the gyrations of particular markets and seeking out the pockets of value that exist in asset classes, sectors and geographies.”
