Changes to Model Portfolios

In June 2021, the Investment Committee made changes to the Model Portfolios that form 75point3’s Centralised Investment Proposition.

The first of these changes related to the underlying investment holdings that make up the model portfolios. Before the changes were made, the models outsourced investment to seven fund houses that run risk targeted mandates. These include Aberdeen Standard, BlackRock, Close Brothers Asset Management, Legal & General, Liontrust, Vanguard Investments, and GAM Fund Management.

The investment committee has recommended the removal of Aberdeen Standard. While the investment run by Aberdeen Standard and held in models remain suitable from a risk perspective, the investment committee deem the performance delivered over the past few years to be insufficient.

By removing this holding from the models improvements are made to a number of metrics, including total returns, Sharpe ratio and volatility.

In addition to this, the investment committee has taken this opportunity to re-balance the split between passive and active elements of the portfolios. We had previously operated the models with a small tilt towards passive instruments. However, given the current market landscape showing signs of heightened valuations and a greater focus on Environmental, Social and Governance (ESG) issues, we have also adjusted this passive / active balance to 50:50.

The net result of these changes increases cost of the model portfolios marginally, with the highest cost increase being in the highest risk models (maximum cost increase equating to 0.09% per annum detailed below). This increase in cost is justified by changes that we feel place our investors in better shape for the future, and looking back, would have on the whole been compensated for in the performance received.

  Previous Cost of Model New Cost of Model
75Point3 Risk level 3 0.43% 0.49%
75Point3 Risk level 4 0.56% 0.62%
75Point3 Risk level 5 0.53% 0.59%
75Point3 Risk level 6 0.53% 0.59%
75Point3 Risk level 7 0.55% 0.64%

 

Chris Marshall MSc, FMVA, CFPTM,Chartered MCSI
Chair of the Investment Committee

Jargon Buster

Volatility 

Volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security

 

Passive Management

Passive management is an investment strategy whereby an investor or financial advisor makes long-term investments in certain securities and is not influenced by short-term market fluctuations. The management style is the opposite of active management.

 

Total Returns

Total return, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends, and distributions realized over a period. Total return accounts for two categories of return: income including interest paid by fixed-income investments, distributions, or dividends and capital appreciation, representing the change in the market price of an asset.

 

Active Management

The term active management implies that a professional money manager or a team of professionals is tracking the performance of a client’s investment portfolio and regularly making buy, hold, and sell decisions about the assets in it.

Sharpe Ratio 

Sharpe ratio is used to help investors understand the return of an investment compared to its risk The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Volatility is a measure of the price fluctuations of an asset or portfolio.