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.
Capacity to make meaningful asset allocation changes
The following chart shows the extent to which DFSPS can take meaningful positions. It shows how the actual asset allocation of the DFSPS Balanced Portfolio has responded to changes in market risk levels (denoted by the black line). Specifically, we see reductions (increases) to Defensive assets as market risk levels increase (decrease).
The chart shows:
- we rotated to Growth assets in 2012 as volatility reduced, coming out the European banking crisis and Greek default/exit concerns
- the asset allocation remained largely unchanged from mid-2012 to mid-2014 as market conditions remained very stable (we did not fiddle as there was no reason to do so)
- we rotated meaningfully to Defensive assets from mid-2014 to March 2016 (i.e. risk increasing due to concerns around US Fed tapering, China slowdown; Commodity sell-off)
- we increased the allocation to risks assets in March & April 2016 as market risks abated
It is ironic that the investment decisions of IFAs and Accounting firms largely mirror institutional approaches. While massive FUM levels at the aggregate level constrain institutions from efficiently adjusting portfolios, boutique firms are not exposed do such impediments.
Boutiques have a strong size advantage and have the potential to incorporate levers to efficiently adjust portfolios. Indeed, DFSPS makes meaningful adjustments as meaningful changes in market conditions are experienced. When this occurs, our boutique size allows us to be nimble and non-disruptive to markets, which provides a significant edge over institutional approaches. As highlighted in the chart above, the allocation to Growth assets varied between 40% (under volatile conditions) and 75% (under stable market conditions).
The world is more fluid; it’s moving much faster and economic conditions & capital markets are exposed to elevated risk factors. DFSPS offers IFAs and Accounting firms portfolio solutions that respond to changes through robust, agile and responsible management.