You may have noticed that Asset Allocator usually analyses balanced portfolios, a core offering that best captures the general mood and plurality of clients.
But what happens when they throw caution to the wind? When given a licence to roam, what’s the result? In short, what does the typical adventurous portfolio look like?
Well, having consulted the database, here are some of the things we found.
If the average balanced portfolio in our database resembles 55:30:15 for stocks, bonds, and alternatives respectively, then 89:4:7 is how our DFMs’ highest-risk offering looks on paper.
But within that heavy skew to equities, there’s considerable variance among them as to how the more growth-y side is constructed.
The US is the favoured region for more daring portfolios, with one third of allocators' total equity exposure parked here on average.
Among DFMs, Handelsbanken park 66 per cent of their portfolio in US stocks, followed by City AM and Marlborough with 47 per cent and 45 per cent respectively.
We asked Raj Manon, head of investments in Marlborough's multi-asset team, for his thoughts on how he constructs their higher-risk propositions, and he said that while still high, they're decreasing their US exposure in portfolios as a response to high valuations.
“We don’t believe a portfolio with a home bias particularly benefits UK investors," he said. "We therefore prefer to construct portfolios with more global exposure and aim to add alpha by tilting towards specific areas of opportunity where we see value."
“This global focus explains our high exposure to US equities relative to some of our peers. The US is still by far the largest equity market in the world and we reflect that in our portfolios."
Indeed US-frontloading tends to be the exception and not the rule for many allocators.
Evelyn Active, Quilter Cheviot, Morningstar, Brooks Macdonald and Premier Miton are among the names that use the UK as a risk-chaser.
All five park more than 25 per cent in UK equities and as such it comprises their largest regional equity holding.
Another idiosyncratic DFM in this regard is Schroders, which weights 33 per cent of its adventurous portfolio in emerging markets, and 26 per cent in global funds.
We asked their investment director Olivia Geldenhuys for the lowdown and she said their adventurous portfolios strip out any instruments that don't provide high growth potential.
"The strategic asset allocation for portfolios 9 and 10 removes all allocation to bonds and alternatives," she said. "This is required to increase the risk sufficiently to achieve a higher level of expected return. Developed equities alone still doesn’t meet this requirement.
"The high weighting towards emerging markets in our highest risk portfolios is therefore reflective of the growth potential these regions offer. Given the inherent volatility associated with these markets, we maintain a diversified portfolio across different styles, sectors and geographies."
They use Polar Capital Emerging Market Stars and Fidelity Emerging Markets, balanced with a holding in the Artemis SmartGarp fund, which is more value focused, she added.
Schroders is one of several DFMs to park near-100 per cent in equities, with others going as low as 80 per cent.
With respect to other asset classes, we found only a third of the allocators we cover use alternatives at all in their adventurous portfolios while about half retain some exposure to fixed income.
It stands to reason, then, that alternatives are firmly the diversifier away from any fear of equity/bond correlation and not, it would seem, a source of alpha or capital growth in themselves. Otherwise, we would perhaps expect to see more than a measly 7 per cent average across the adventurous propositions in our database.
You can read more about whether allocators use alternatives to defend or to attack, here.
