Outcomes-based range expands | Introducing the High Growth portfolio
We’ve seen some stellar performance from the outcomes-based range and with the popularity of these portfolios growing, we’ve identified the need for an additional outcomes-based solution. The existing outcomes-based models are Regulation 28 and use a restricted risk budget. As we’ve done extensive research in asset class characteristics, we’ve noticed that you can typically only achieve a CPI+5% target if you extend your investment period to at least 7-years. However, for really long investment periods (anything longer than 10-years), and where one wishes to invest outside of the Regulation 28 constraints, the risk management looks slightly different. The findings of this research led to a new blend of asset classes and ultimately the development of the High Growth strategy. Where all the other strategies incorporate defensive asset classes, this strategy consists purely of growth assets. We found the ideal split to be a 50/50 allocation between local and offshore assets, whilst only including listed property and equity.
Our local capital growth outcomes-based range (prior to the launch of the High Growth model portfolio) consists of the following solutions:
|SOLUTION||ASISA CATEGORY||ROLLING INVESTMENT TERM||RETURN RANGE: UPPER BAND|
|Steady Growth||Multi-Asset Low Equity||3-5 years||CPI + 3%|
|Guarded Growth||Multi-Asset Medium Equity||5-7 years||CPI + 4%|
|Optimal Growth||Multi-Asset High Equity||7+ years||CPI + 5%|
In addition to the outcomes-based range, we had some legacy portfolios (which we still actively manage) called the target return solutions. One such target return model portfolio had a relative benchmark of CPI+6%. As we aim to align most of our portfolios with our outcomes-based investment strategy and attempt to offer the cleanest form of our thinking and philosophy through a pure outcomes-based model, we’ve decided to amend the existing CPI+6% portfolio.
This portfolio will be known as the High Growth portfolio going forward. Note that when you now view the fact sheet for the High Growth portfolio, it will still include the historic track record prior to the name change; mandate change and underlying holdings which we amended.
WHAT ELSE HAS CHANGED?
When we analysed this High Growth portfolio, we found that this portfolio’s asset mix and philosophy is highly suitable for a tax-free investment vehicle. As tax-free savings portfolios gained traction in recent years, the fund availability for these models also expanded. We could therefore easily align the managers across the normal High Growth Model Portfolio and the TFSA High Growth Model Portfolio. Due to the need for a tax-free savings model portfolio that is more aligned with our outcomes-based thinking, we have also amended the existing tax-free savings model portfolio and launched this model on LISPS which previously did not support tax-free savings model portfolios.
WHAT YOU NEED TO KNOW FROM A PRACTICAL VIEWPOINT
Even though all the funds in the High Growth model portfolio can be used in a tax-free savings product, some LISP administrators require a separate model portfolio for the TFS vehicle. Therefore, there will be 2 High Growth model portfolios on the platforms. Whenever you do online transactions, you do not need to be too concerned as the correct model should in most instances only be available for the applicable product in which it is used. It is however important to understand that the fact sheets for the High Growth portfolio and TFS High Growth portfolio will show different return numbers as the High Growth portfolio will include the historic track record from the CPI+6% model, but the mandate and underlying fund holdings are the same.
WHEN TO USE HIGH GROWTH
Remember that the Optimal Growth portfolio can be used for a client where their investment goal is 7- years or longer. Although it is a Regulation 28 portfolio, it is also available for use in discretionary investment products.
The High Growth portfolio is NOT Regulation 28 compliant and is more suited for a client where their investment goal should be reached over a 10-year or longer investment time horison. This portfolio will therefore not be available in pre-retirement compulsory products. This portfolio is also ideal where the client or advisor wishes to invest in pure growth assets.
Remember that Amity Investment Solutions is platform agnostic and in most instances all our model portfolios will be available on most major platforms.