Traditionally considered a bespoke service, discretionary fund managers (DFMs) are no longer the preserve of the very wealthy as other types of strategies, such as risk-rated, have made these services available to a wider range of investors.
As with any type of investment vehicle, tracking performance is vital, but unfortunately this is where the industry falls down.
While there are figures available, they are not representative of the industry as a whole. For example, there is no DFM sector equivalent to those provided by the Investment Management Association, which allows investors to make like-with-like comparisons.
What is available are figures from different organisations, including the Asset Risk Consultants (Arc) private client indices. This organisation produces reports that are compiled using portfolio performance data provided by roughly 51 private client discretionary investment managers.
The performance figures sit within four categories that cover different levels of volatility: ‘cautious’, ‘balanced asset’, ‘steady growth’ and ‘equity risk’.
In the third quarter of 2014, all four indices produced positive returns, with the performance of ‘cautious’, ‘balanced asset’ and ‘steady growth’ in line at 0.6 per cent, while ‘equity risk’ lagged at 0.4 per cent.
In the year to date, investors might be surprised to learn it is the ‘cautious’ and ‘balanced asset’ indices that have delivered the strongest performances, each posting 2.5 per cent in the period. Meanwhile, the ‘steady growth’ index notched up a performance of 2.3 per cent in the same period, with ‘equity risk’ slightly behind at 1.9 per cent.
It is worth noting, of course, that these figures only give a glimpse of the whole picture as the data comes from a sample of managers.
In its latest commentary, Arc observes that in 2014 it has been difficult to make decent returns.
According to its figures, “for the last few years an active manager would have required an overweight position in US equities to have outperformed the World Equity index, something that few discretionary managers have been keen to adopt”.
The other source of performance figures that investors can get hold of is the private investor indices provided by the FTSE and the Wealth Management Association (WMA).
The WMA states: “These are not industry-wide benchmarks, nor do they provide any kind of alternative to the professional investment advice of portfolio managers. However, used properly, they can give a useful perspective on the world of stocks and shares and on the performance of your portfolio.”
These indices are broken down into ‘balanced’, ‘conservative’, ‘global growth’, ‘growth and income’. According to FE Analytics, in the 12 months to November 20 the FTSE WMA Stock Market Global Growth index has delivered the growth its title promises, generating 10.87 per cent return for investors. Over the same period, ‘balanced’ has delivered 7.53 per cent and ‘growth’ 7.46 per cent. The ‘conservative’ and ‘income’ indices are only slightly behind, with 7.40 per cent and 7.10 per cent, respectively.
So while investors should certainly keep a close eye on the performance of their DFM portfolios, the figures available to them are limited. The industry would do well to find a way to gather and publish more comprehensive data in order to provide investors with the bigger picture.
