The objective of our risk based asset allocation approach is to stabilise portfolio risk by responding when market conditions change. For clients, risk does not only mean a failure to reach their financial objectives; it’s also the anxiety they feel from market turbulence. Our risk based asset allocation approach explicitly focuses on reducing investor anxiety; but it also takes advantage of buoyant markets by enhancing portfolio returns when markets are stable. A rigorous risk-based approach that works for the good times as well as the bad leads to better portfolio outcomes
DFSPS has the capacity to take meaningful dynamic positions when market conditions warrant, as the next two charts illustrate. The charts show the risk-return experience of the DFS Balanced portfolio, along with a sample of other high-profile Balanced funds over different market conditions.
The period shown in the chart above was relatively stable for markets, with low risk and solid to high returns for all funds. To capitalise on the stable conditions (when Growth assets are less risky), DFSPS spent most of the period overweight in Growth assets, which explains why the DFS Balanced Portfolio assumed a higher (albeit measured) degree of risk.
In comparison, the subsequent twelve months was a much rockier period for global markets as highlighted in the chart below.
Returns were volatile and weak over the year ending 30 June 2016. With the exception of the DFS Balanced portfolio, the funds shown saw their risk increase by around 50% against their previous level. To stabilise risk during this turbulent period, DFSPS responded by rotating away from growth assets in favour of defensive assets. Consequently, the risk of the DFS Balanced portfolio remained virtually unchanged.