Managed Portfolio Service - one year on

Somehow, it’s already a year since we launched our Managed Portfolio Service (MPS). We were naturally cautious when it came to offering our own investment solutions for the first time, but we have been delighted with how well received they have been, and would like to thank you for your support in the next stage of AJ Bell’s journey.

It has certainly been a positive market environment during the past 12 months, with many equity markets hitting record highs on numerous occasions. In the US, the S&P 500 Index has been driven higher by a major rally in the technology sector, while the UK market has prospered despite the potential headwinds of Brexit and a hung parliament. The weakness in sterling has certainly been a major contributory factor to the performance of the UK market, once again pointing to the importance (or perhaps challenges) of assessing currency markets.

One certainty over the past 12 months is that our focus on long-term investing has not changed, despite a significant amount of ‘noise’ going on in the global economy and on stock markets. It would be very easy to become totally confused since we launched our MPS, trying to understand the impact of political events on markets. Be it Donald Trump’s latest tweet, a missile test in North Korea, negotiations between Europe and the UK, Brazil’s corruption scandal or many other events, we have built an asset allocation approach that deliberately looks beyond the short-term impacts of these events.

Strategic asset allocation changes

By working with Moody’s Analytics and taking a 10-year view, we believe that a patient approach is vital. One area where this benefits investors is in the lower level of transaction costs compared to many strategies, as we are not unnecessarily trading the portfolios trying to capture the next potential idea. This has meant very little change to the portfolios over the past year at a headline level:

(*when compared to the initial launch allocation)

When looking beneath the bonnet, there have been minor changes within the fixed interest allocation, with exposure to high yield bonds increasing at the expense of government and corporate bonds. Within the equity allocation, all regions have increased with the exception of Japan which has marginally decreased. All of these changes are as a result of Moody’s adjusting its 10-year outlook for asset classes and regions, rather than as a result of any short-term tactical opportunities that may or may not exist.

Manager changes

The long-term, stable approach to asset allocation also follows through into our manager selection. As a result, there has only been one change to the underlying holdings over the past year, where the UK government bond exposure has been moved from the Vanguard UK Long Duration Gilt Index Fund to the Vanguard UK Government Bond Index Fund. This represents a subtle change but importantly lowers the duration of the exposure to the market average, rather than being explicitly long duration.

Active management

While there has been limited activity on the portfolios in the first year, we see this very much as a positive. The robust and repeatable approach to asset allocation that we have established combines Moody’s expertise with the knowledge and experience that the AJ Bell Investments team brings to the underlying fund selection, and the overall result has been a successful first year.

While there will no doubt be many more issues thrown at investors in the coming months and years, we firmly believe that taking a long-term approach is the sensible way to give investors exposure to a wide range of asset classes without the need to constantly tinker with the portfolios unnecessarily.

To keep up-to-date with what is happening in the MPS, look out for our new quarterly reports that will be available after the end of Q3.

Head of Active Portfolios, AJ Bell Investments

Before joining AJ Bell, Ryan worked as a Fund Manager and Discretionary Portfolio Manager at a leading global investment management firm. Prior to that he was a Senior Fund Manager at one of the UK’s largest investment groups, enjoying a place on both the investment and global asset allocation committees. All in all, Ryan brings more than 15 years’ experience in the investment industry with him to AJ Bell.