How passive portfolios are becoming ‘smarter, faster and lower cost’

Allan Lane explains how passive portfolios are becoming ‘smarter, faster and lower cost’.

Kate Horne: It is the start of 2020. We are in January. Let’s look back at 2019.

Allan Lane: What a year 2019 was. We all live quite a few years where things don’t quite turn out the way we would hope. Across nearly every asset class, 2019 was a winner. Let’s go through some now. Take the F&P 500 in local currency, up over 31%, take the FSTE, which was probably up about 17%. In your wanted to extend to emerging markets, that probably made another 18%. Gold, that was up 18%. Fix income, treasuries and GILTS, they are up at 7%. I mean really, how easy can it be?

What that meant, if anybody offered model portfolios and they stayed with the market, and even on a balanced portfolio, you are getting decent returns. That suggest some idea for next year.

Kate Horne: Okay so if we look at 2019, what kind of indicators can we, if any, take forward for 2020.

Allan Lane: It is a good rule of thumb that the markets rotate. So, if you have had a very strong year, or in fact a bad year, then perhaps next year will be the opposite. Now, if only it was this simple. Of course, it isn’t.  What we must do is identify whether there are pockets of opportunity. Clearly, the emerging markets is a very broad area. There are some aspects of that, that look like they could offer quite a bit of return. Of course, in the UK, politics held us back for the year due to indecision. I think that is quite possible that in another strong market, we have heard talk of a rate cut in the UK, which might prompt growth.

Kate Horne: So, if we start to look at financial advisors, what sort of thing might drive an enquiry from a financial advisor.

Allan Lane: Two things. Firstly, I would say that we will be talking more to financial advisors, as they are searching for reassurance. If they study the history books, we could be in for a hard sell off. That is the last thing financial advisors want as they face off to the end investor. Therefore, it is important for us to explain why the worst can be prevented, all be it on a risk adjusted basis. Basically, what financial advisors will be looking for, is as much information as possible to be presented back to ensure that value is being added.

Kate Horne: In terms of Linear Investment’s proposition, how are you able to service those advisors?

Allan Lane: Again, two things. Firstly, the capacity to outsource investment management functions. I took a call last week with a client from the research front, who uses our tools on an advisory basis. He told me that he won’t be using the tool next year, because when his business was reviewed, the impact of Mifid 2, On his cost base, has been quite onerous. His business has been forced to do what a lot of others have been, and that is to outsource to a DFM.

So, when we look to help a financial advisor, it is always the evolution, not the revolution. The mantra of better, cheaper, faster is needed to progress. It’s been the narrative for quite some time. We are now offering our model portfolio service and Linear will drive that to such a fantastic offer now, to 15 basis points. That is not just managing the portfolios, there is also a service including all the reporting and the fact sheets. So that brings us back to, better, cheaper, faster. We believe that is the way forward.