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The benefits of using model unit trust portfolios

Diversification can be expanded to not only include different asset classes, but also different fund managers.

Some investment advice practitioners have developed “model portfolios” on their favoured linked investment services provider (LISP) platform i.e Allan Gray Linked Services, Ninety One IMS, Stanlib, Momentum Wealth etc.

So let me begin this expansion on this topic by saying that not all model portfolios are created equal, but if you have a professional analytical team and an advisory practice that is not chasing extra fees at all costs, there are advantages to using this method.

Let me explain….

In collaboration with an advisory practice’s favoured LISP, the practice has the ability to develop model portfolios based on their version of the best unit trust portfolio for whichever risk profile most of their clients on that platform fall into.

This now allows the investment advisory firm to manage the exposure the client has to all the funds underlying their investment as a single unit rather than having to look through every single client account to see who has exposure to a specific unit trust fund.

Model portfolios will appear as a single fund on the investor’s LISP statement, but in real terms, they are invested in multiple underlying funds usually with different fund managers.

The advantages of using model portfolios for the investor and the advisory practice can be summarised as follows:

  • The advisory practice will have the ability to manage the investor’s investment accounts more efficiently by implementing changes as soon as possible if market conditions change.
  • Diversification can be expanded to not only include different asset classes, but also different fund managers which does reduce the overall portfolio risk.
  • It makes the investment advisory firms’ analysis and performance tracking of the underlying unit trust funds simple because the analyst will only be tracking a lower number of funds as most investors will be exposed to the same funds. In addition to this, it allows the analyst to spend more time analysing the fund and thus the analysis of the fund is deeper, which again aids the performance of the client’s investment.
  • Rebalancing: When or if a fund switch is required a single instruction to a LISP will be issued by investment advisory practice rather than submitting a switch instruction per client account across the whole client base which makes this process:
    • simpler; and
    • reduces the probability of fund switches not being effected or being missed.

This does, of course, come with the disclaimer that this all depends on the capacity of the investment advisory practice and how the model portfolio has been structured.

Also, one should be aware that only Category II FSP licence holders can enter into model portfolio structures with LISPs and over the last few years many investment advisory practices have outsourced the fund analysis and selection functions to specialist service providers known as discretionary fund managers (DFMs) who provide this service to the investment advisory firm, allowing the investment advisor to focus on the investor’s investment planning requirements if that investment advisory firm cannot or does not want to build their own analytical team.

So if your advisor has suggested a model portfolio to you, this is not a bad idea, but special attention should be paid to how its managed, what the fees are and what the advantages to you the investor are. Pay special attention to the fine print, take your time to analyse what is being advised and obtain a second opinion if you are uncertain.

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Michael Haldane

Global & Local The Investment Experts


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I have done exactly this – assembled my own (amateur) mixed portfolio using one of the top funds in various asset categories. Done a bit of “scrubbing” and topping up.
The YTD performance of this private portfolio is +7% since Jan 1st 2020.
I must admit there are a few real “stars” which is a pleasure.

I’ve been managing my own retirement investments for about 8 years. I’ve beaten all of the fund managers with which I have had small investments (mostly for the sake of tracking my own performance) by significant margins.

So far, this year, my self-managed portfolio is 20% up. The best fund performance from any of the fund managers that I am tracking is 8%.

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