Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Managed accounts growth beats predictions
In the middle of 2015, Morgan Stanley Research in Australia published a report which predicted that managed accounts would prove to be a major disruptor of traditional investing via managed funds/unit trusts. The report, ‘Evolution or Revolution?’, seemed overly bullish on the new way for individual investors and their advisers to access professional investment management. As it turned out, the researchers undershot the mark.
Morgan Stanley predicted that funds in managed accounts would jump from an estimated $13 billion to more than $60 billion over the next five years. Figures published this week (September 15) by the Institute of Managed Account Professionals and Milliman, an actuarially based advice firm, in the sixth annual ‘census’, reported the total in managed accounts at the end of June 2020, as $79.71 billion – about 25 per cent higher than predicted in 2015.
The latest figures represented a 12 per cent year-on-year increase, which was despite a barely perceptible increase, from $79.21 billion, in the second six months when the overall market fell about 10 per cent. The fastest-growing segment, which is good for financial planners and other advisers who participate in managed accounts, is managed discretionary accounts (MDA) services (up 21 per cent over the year), followed by separately managed accounts (SMAs) and managed investment schemes (combined growth of 10 per cent). Net inflows in the past six months totalled $3.54 billion.
Victor Huang, Milliman’s head of capital markets in Australia, said: “The main features of investment markets for the first half of [calendar year] 2020 were negative or bearish market sentiment driven by the COVID-19 crisis, geo-political tensions and the resulting high volatility. The value of the ASX/S&P 200 Accumulation Index actually fell 10.42 per cent, compared with the 3.06 per cent increase for the prior six months. This helps explain the reason why overall FUM (funds under management) didn’t move (over the six months) when at the same time there were positive funds inflow and newly reported FUM.” Just over one-third of the six-monthly inflows were from new entrants to census.
Toby Potter, the chair of IMAP, said: “The fact that managed account arrangements showed a positive inflow in such unprecedented times illustrates the importance of investors, advisers and investment managers working together and focusing on the long-term goals and benefit to the end-investor. Advisers tell us that inflow is principally from migrating existing clients from advice-only services to managed accounts, to provide a better client outcome.”
Potter said the MDA category continued to grow and continued to be the largest category. However, a “material amount” of this was due to FUM moving between categories due to regulatory change and some reclassification by survey participants. A total of 47 companies (up from 39 as at December last) participated in the latest census. Six new respondents were existing MDA providers responding for the first time in the census. Participants included the very large major platforms, banks, and MDA providers, as well as individual licensees.
“We strongly encourage all organisations offering managed account services to participate in IMAP’s Census, and to engage with IMAP,” Potter said.
