How balanced is your balanced portfolio?
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Six portfolios from six different providers. Same risk ratings. Same risk profile – ‘balanced’. Based on this, you’d probably expect them to look reasonably similar in terms of make up. But that’s not always the case.
7IM Strategic Asset Allocation (SAA)
Fund Manager A
Equities
Fund Manager B
Fund Manager C
Emerging Market/High Yield Bonds
Fund Manager D
Investment Grade Bonds
Fund Manager E
Cash
Equities
Investment Grade Bonds
Other
17%
25%
24%
difference
difference
Different equity allocations can have a real impact on portfolio performance. A “Balanced” allocation with 60% equities could be a lot more risky than one with 50% equities.
Other
difference
Investment grade bonds have the biggest variation – a difference of nearly 25% between the smallest and largest holders.
A close second is Other – some portfolios have nothing in the Other category, while some have up to 24% of their allocation here.
Other: There’s no set definition of what ‘Other’ contains and it can vary hugely between providers. Also it could be 24% all in one asset, or made up of 24 different types at 1% each.
On broad asset classes alone, the differences are stark.
Look more closely, and compare the geographical allocation Global markets don’t look like the global economy. Other: 15% China: 4%
Global equity market weights (MSCI ACWI)
UK: 5% Japan: 7%
US: 57% US equity is more than double its economic weight.
Europe: 12%
Other: 33% US: 24% The equity allocation to China is a quarter of its true economic weight.
Global economy (GDP)
Europe: 18%
China: 16% UK: 3%
Other: 16%
Japan: 6%
US: 26% China: 6%
7IM SAA
7IM equity allocations take into account our UK client base, and are more evenly distributed around the rest of the world.
Europe: 12% UK: 28% Japan: 12%
Regional exposure also significantly affects your sector exposure Different countries are weighted more towards different sectors.
EUROPEAN EQUITY Health Care makes up 17%
US EQUITY
CHINA EQUITY Consumer Discretionary makes up 31%
UK EQUITY
Information Technology makes up 25%
Consumer Staples make up 18%
JAPAN EQUITY Industrials make up 20%
EMERGING MARKET EQUITY Financials make up 20%
Countries’ weightings towards different sectors may give an over concentration that you hadn’t considered.
Summary The make up of balanced portfolios can vary wildly. Dig deeper to see if yours is as balanced as you think.
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Discover more about our Strategic Asset Allocation and the range of Funds and Models based on it at 7im. co.uk Source: Internal analysis conducted by 7IM. Capital at risk. The value of investments may go up as well as down. Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority, the Jersey Financial Services Commission and the Guernsey Financial Services Commission. Member of the London Stock Exchange. Registered office: 55 Bishopsgate, London EC2N 3AS. Registered in England and Wales number OC378740.