Managed Portfolio Service
The Vantage managed portfolio service builds upon decades of peer-reviewed research and analysis by some of the world’s leading academics, including numerous Nobel Laureates, to provide a simple, efficient and effective portfolio management service.
All portfolios in Vantage are built around EBI’s core investment beliefs of;
Asset allocation is key
Establishing an appropriate mix of equities and bonds is the dominant contributor to the total return of an investment portfolio.
Diversification is essential
Acting as a risk management technique that mixes a wide variety of investments, covering multiple asset classes and with no bias to a specific industry or segment; “Diversification is the only free lunch in investing”.
Identifying and minimising costs of all kind; investors don’t just lose the amount paid in fees, they lose the growth that money might have made for years to come.
Investors should expect to receive a return above the risk-free rate in exchange for the capital they supply.
Tolerance Based Rebalancing
When selecting the right portfolio, an investor’s risk capacity will be measured and matched with a suitable portfolio. Rebalancing is the means by which consistent risk exposure is maintained. If left unattended, the portfolio may increasingly become overpowered by the riskier assets, therefore rebalancing is an essential component of portfolio management.
Rebalancing is not only designed to keep the risk characteristic of a portfolio in check, but it also has the potential to enhance returns as rebalancing forces the portfolio to sell high and buy low, which should enhance the returns in the long run. Traditional annual rebalancing has limitations, and can be improved upon.
Vantage looks daily at the composition of each portfolio and determines whether a rebalance is necessary. The program and the algorithms that make this determination have been designed using in–house research, based on an initial review of over 60 research papers.
Cost and Benefits
EBI has conducted two studies comparing annually rebalanced portfolios and Vantage. The first study analysed a 12-year period (2001 to 2012) of simulated returns, followed by a second study analysing 5 years of actual returns (2014 to 2018) for the EBI UK Bias suite of portfolios.
In both studies, nearly all of EBI’s Vantage portfolios, net of the 0.12% DIM (Discretionary Investment Management) fee, carry a premium over the annually rebalanced portfolios. The source of the Vantage premium is driven largely by tolerance based rebalancing, which forces the portfolios to sell high and buy low. Vantage trades the funds furthest from their target allocation, whilst leaving those closest to target. Annual rebalancing simply trades all assets regardless of how close they are to target. Vantage is more efficient at selling higher and buying lower than might normally be the case with annual rebalancing.
The below table shows the annualised returns of EBI’s UK Bias portfolios from 01/12/2013 to 31/12/2018; rebalanced either annually or by using the Vantage managed portfolio service.
Intuitively, lower volumes of trades and lower cash holdings ‘out of the market’ will generate fewer costs, keeping more funds invested more of the time, therefore improving returns for investors.
Portfolio turnover is a measure of how frequently assets within a fund are bought and sold by the manager. This turnover can impact returns in several ways, both explicit and implicit. Mutual funds, Unit trusts and ETFs (exchange traded funds) can all have costs that aren’t clear to see, such as swing price levies, bid/offer spreads and initial charges. The more assets that are traded, the higher the costs.
With trading, one can expect to be in cash and disinvested for a day or longer, for an element of the trades conducted, depending on the trading policy of the respective platform. The below chart shows the average percentage of funds traded over a 5-year period analysed in EBI’s study, comparing annually rebalanced portfolios to their equivalent Vantage portfolio.