Asset Allocation Research for UK Advisers

What is co-manufacturing, what are custom or tailored model portfolio and what are the risks and benefits?

MPS and multi-asset funds – different formats, not necessarily different strategies

A multi asset fund is a single fund which includes within it a ready-made portfolio of funds from two or more of the 4 key asset classes: Equities, Bonds, Alternatives and Cash.
One way to imagine them is a Burrito with a little bit of everything: meat, veg and sauce (a diversified meal), wrapped up in a tortilla (a single fund wrapper) for convenience and ease of transportation!

In our suggestions to the FCA for the MPS review published this summer, we called for greater standardisation of rules between Multi-Asset Funds (MAFs) and Managed Portfolio Services (MPS).  While the two formats differ in delivery, legal format, and tax treatment, they are similar in scope and function. Funds require: KIID, factsheets, benchmarks, and standardised performance reporting. MPS, by contrast, have no such requirements.  This makes comparison difficult and transparency challenging.
So we very much welcome the FCA’s proposals in DP25/3 to align MAF and MPS disclosure and reporting standards.
Greater alignment would help advisers and therefore their clients in three critical areas: consistency, comparability, and transparency.

Our founder Henry Cobbe was invited to speak to the key clients of Jupiter Asset Management on the future of multi-asset and MPS investing at their event at the National History Museum.
Full article to follow.

​What a budget. Our initial reaction is that the process leading up to it has been nothing short of shambolic. Endless leaks, speculation, and U-turns have exhausted everyone. Whatever happened to good old-fashioned purdah? Instead, we’ve had a free-for-all of briefings, capped off by a leak on the morning of the announcement - an extraordinary embarrassment that moved bond markets and undermined confidence in the OBR.

Elston Consulting has designed the Elston Smoothed MPS solution that has been manufactured by Elston Portfolio Management for UK advisers. 

The full article is in Money Marketing

​In this article, we break down how smoothing mechanisms work, why they divide opinion, and how we are using them at Elston to build industry-first blended portfolios that aim to deliver a more stable journey for both accumulation and retirement.

The Smoothed Funds Survey provides a valuable look at adviser's current opinions, utilisation, and strategies regarding smoothed and with-profit funds.

At Elston Consulting, we design investment solutions delivered as portfolios, funds and indices for our financial adviser, investment manager and fund provider clients.  In the same way that advisers need to think about their target market of retail customers, we as a co-manufacturer need to think about our target market of UK financial advisers.  Target market research and testing forms an important part of our solutions design process to ensure what we develop is helpful to UK advisers and solves a client need and can be clearly communicated.  Thank you to those advisers that are participating in our market research surveys.  It might give a clue as to what is currently in the laboratory!

As asset allocators we are aware of the surplus of funds in some areas, and glaring gaps in others.  That’s why we maintain a wishlist which we share in our catch ups with fund houses.  We are now making this public to drive industry engagement.

​Some platforms pay decent rates on cash.  Others trouser the "net interest margin" - when the interest they earn on platform cash is more than they pay on platform cash.  This is something the FCA has flagged in a Dear CEO to platform providers when the rates have been unfair to Consumers.
So, advisers: if you like a platform, but don't like their cash rates, then consider smarter cash management solutions.

Basic rate taxpayers: if your client is a basic rate taxpayer then use a money market fund.  This is a way of accessing wholesale sterling money markets, whilst disintermediating the banks who have a regulatory requirement to hold money markets too.

Additional or higher rate taxpayers: if your client is an additional or higher rate taxpayer then use near-term low-coupon direct Gilts.  The capital and interest is guaranteed by HM Treasury, and the amounts are unlimited.  Their low coupon means the bulk of the quoted "Yield To Maturity" is capital gains which are CGT exempt for Gilts, meaning higher overall Gross Comparable Yield relative to money markets and cash for higher rate taxpayers.  By sticking to near-term (<3 year) gilts, there is very low (<3 year) duration risk.

Read Henry Cobbe’s latest interview with Professional Adviser about why adviser-built model portfolios could be the real winners in the MPS market.

​https://www.professionaladviser.com/interview/4519429/adviser-built-portfolios-win-mps-race

The whole world of retirement advice is undergoing a fundamental shift, and rightly so. The old frameworks simply don’t cut it anymore. Asking a client what their risk profile is and then slotting them into a generic box is meaningless. Retirement isn’t about labels it is about outcomes. And targeting particular outcomes requires proper modelling.

For UK financial advisers only

A lot has changed since Henry Cobbe called for greater Customisation of Model Portfolios by financial advisers back in 2018.  Industry has heeded the call with Custom MPS being the fastest growing sub-set within the rapidly growing MPS market.
Henry also outlined why he thinks Advisers, not DFMs, will win the race in Managed Portfolio Services (MPS) in this podcast with FT Adviser in July 2022.

Over 90% of the approx £2bn in AUM managed by Elston Portfolio Management is in adviser-defined Custom mandates designed by Elston Consulting, who are leaders in this field.  This excludes the approx £4bn in AUM of Elston Consulting's other DFM clients including a national advice firm.

Co-manufacturing is soaring in popularity: in this workshop, Henry Cobbe explores what is it, and what are the risks in this article.

​Elston Consulting, an investment solutions provider supporting UK financial advisers has designed a range of Sustainable model portfolios built with 100% SDR compliant funds. The portfolios have been launched by Elston Portfolio Management, a platform-based MPS provider.

We discuss the rationale for being overweight US Equities given the resilient economy and strong earnings growth outlook.  But one manager's overweight can be another manager's underweight: it depends on your benchmark and how you define "Neutral."

We explore what the FCA might focus on in their review of Managed Portfolio Service (MPS) Provider

We look at the latest data from the SPIVA® Europe scorecard and key findings.  UK Small Caps are one of the few bright spots.