Paul Williams, director – research at Blankstone Sington, Liverpool tells us how they keep our finger on the pulse.
'The pragmatic investment process that we have developed at Blankstone Sington (BS) has at its heart an asset allocation model designed, as much as possible, to remove emotion from the decision making process. The model, ‘Market Pulse’, was built in-house and requires nine varied inputs once a month to produce a reading.
Some of the inputs are traditional, such as price to free cash flow, and some are more subjective, such as a poll amongst managers measuring client risk appetite. The output from the model is a single score that determines which band on a pre-determined asset allocation matrix is to be followed.
Equity – the swing factor in determining risk
Our asset allocation targets dictate the percentage split between equity, fixed income and alternatives.
When Market Pulse is producing a more defensive score, the equity target allocation will be lower across each of the portfolios (cautious, income, balanced and growth) and fixed income and/or alternatives will be higher. When Market Pulse produces a more aggressive (risk friendly) score, the equity target allocation will be higher across each of the portfolios and the target for fixed income and/or alternatives lower.
Market Pulse is in essence a contrary indicator. It is designed to force an increase in equity exposure after an equity bear market and reduce equity exposure following a bullish equity market.
Model Portfolio Service (MPS)
We launched our MPS at the start of February. The portfolios are constructed using the asset allocations dictated by Market Pulse and populated by investments from our pooled funds list. The buylist contains open and closed-ended funds which invest in equities, fixed income and alternative assets.
One of the advantages we have is being able to select some exciting niche funds that are too small to be on the buy list of many of the larger wealth management groups. I chair our six-strong committee that meets once a month to make changes to our pooled funds list, although most of the hard work is done conducting due diligence between meetings.
Market Pulse signalled a more risk averse approach in the final quarter of 2017 and dictated that the balanced portfolio move to 45% equity, 30% fixed income and 22.5% alternatives (cash 2.5%). In February there was a shift to a more risk friendly approach and Market Pulse signalled a change in the equity exposure to 55%, at the expense of fixed income. Since then there have been no further changes in target asset allocations.
We have 25 funds in the balanced portfolio, providing plenty of diversity. In the equity portion we have solid core funds such as Saracen Global Income & Growth fund, co-managed by Graham Campbell (pictured), with more niche funds providing the longer term growth driver such as Alquity Asia fund.
In the fixed income selection, the Liontrust Monthly Income Bond fund is a stalwart of our buy list having provided a high, consistent level of income coupled with solid capital preservation over many years.
The mix in alternatives is more eclectic with NextEnergy Solar sitting alongside a physical gold ETF, a fund that invests in structured products (the AHFM Defined Returned fund) as well as SQN Asset Finance Income which invests in equipment lease and asset finance arrangements in the UK and US.
Performance of the portfolio lagged the WMA Balanced benchmark until the start of the recent market sell off. In September and October, the portfolio has strongly outperformed. This is typical of our portfolios which tend to be more defensive at every risk level.'