Portfolio Management.

13th June 2013

Jonathan Wiseman, Fund Manager, WEALTH at work discusses his approach to portfolio management in iShares Online.

“Price is something we consider, but it’s not everything”

What’s your approach to portfolio management?

The majority of our client assets are invested in one of our three core discretionary mandates – Cautious, Balanced or Adventurous. This is of course dependent on the client’s risk-return appetite, and it is this risk-return requirement that also governs the fund selection process and indeed the asset allocation. We are true believers in active fund management but do feel that ETFs have a place in a diversified portfolio, and as such our portfolios do have some strategic allocations towards them. The majority of holdings in each of the portfolios are the same, it is the asset allocation that differs, as there is no reason why a fund that has strong risk-return characteristics shouldn’t be held in all portfolios.

Our clients are in or are about to enter retirement, and so our key focus is not achieving an absolute gain, but rather about achieving the right risk/return balance. Volatility is hugely important, on the upside as well as the down, as given the requirements of our client base, we can’t afford for the portfolio to swing massively overnight. For us it’s just as important to outperform the market when its falling as it is when it’s rising, as we look to outperform the market over the course of many cycles, not just the one.

Why do you use ETFs?

We use ETFs to gain exposures to asset classes where perhaps an active fund is not available, and for better control over asset allocation. ETFs are great for ramping up specific exposures. For example if you believe in the Mexico growth story, it is neigh on impossible to find any meaningful active exposure,  so holding something like the iShares Mexico ETF in conjunction with maybe an actively managed Latin America fund or Emerging Market fund enables you to back your regional convictions without taking excess risk. As you tend to find that most Latin American funds are plays on the Brazil story, due to its index weighting, and consequently end up having high weightings in Petrobras and Vale.

We also think ETFs can be useful in rebalancing portfolios. For example, we have a segregated equity content in the UK and make any small rebalances with a FTSE 100 ETF, that way clients still have the full and intended exposure. It also helps that they trade intraday, as it enables us to take advantage of market movements.

How do you choose between ETFs?

We only buy physically-backed ETFs. Then when choosing between funds price is something we consider but it’s certainly not everything. Tracking error, exposure and methodology are all important factors. First and foremost, we believe in good products that help in achieving our client’s requirements.

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