Pension Approach – a blending of art and science
Derived from proven institutional investment management consulting practices, these pension-like portfolio solutions offer investors the benefits of customization along with wider diversification of asset classes, investment management styles and objectively selected and highly specialized, underlying professional money management.
Objectivity
Unlike a fund-of-funds approach which invests in traditional mutual funds (or segregated funds,) a hallmark of many institutional strategies is the separation of the management consulting and investment management roles. While market and asset class forecasting and on-going money manager due diligence is the responsibility of the consultant, actual day-to-day money management is the responsibility of assigned portfolio managers who ideally are completely independent of the institutional consultant.
Asset Allocation
Applying history as a guide, forecast returns and risk analysis can be performed for the various asset classes including equities, fixed income, real estate and others... Based upon this analysis, an optimized asset mix policy reflecting your return requirement, time horizon, risk tolerance, income and liquidity needs can be modelled and rebalanced to as necessary; taking into consideration performance of the asset classes included, as well as changes to forecast assumptions and/or investment goals/needs.
Manager Selection
Upon thorough analysis, managers and/or multi-manager teams (PDF) are selected for highly specialized job descriptions, promoting diversification of varied management styles (PDF) within key investment management disciplines. Though historical performance and name recognition are important, these are generally not key factors in predicting future success, rather other dimensions including people, philosophy, process and portfolio must also be considered in the overall assessment of risk-adjusted performance.
Pooled Funds
As the name suggests, pooled funds are comprised of several individual fund mandates. The benefits of pooled funds are three-fold; immediate and wide diversification across several independent, underlying money manager specialists, lower investment minimums and often significantly reduced management fees. Money managers and/or blended management teams which comprise the pooled fund are continually monitored and where warranted by comprehensive analysis, individual managers and/or entire management teams may be replaced as necessary in search of more optimal risk-adjusted performance. In addition, pools enjoy automatic rebalancing at the manager and style level – while rebalancing of the overall portfolio back to your strategic, optimized asset mix policy is generally performed by hand.
Individual Fund Mandates
Certain managed portfolios including ScotiaMcLeod’s proprietary Pinnacle Program, are comprised of multiple investment mandates (rather than deploy pooled funds.) Where invested outside of a Registered Plan, managed portfolios comprised of individual fund mandates may enjoy favourable tax treatment; whereby the management fee (MER) may be considered a tax-deductible expense
Separately Managed (Segregated) Accounts
Not to be confused with segregated funds, SMAs may offer the ultimate in portfolio customization, while also enjoying the many benefits of institutional management practices. By retaining title to individual securities additional tax planning benefits may accrue. Offered within a fee-based (PDF) account environment, for high-net worth investors, separately managed accounts including ScotiaMcLeod’s proprietary Summit Program, may offer an ideal blend of customization, tax-efficiency and cost-effectiveness.
Keep your objectives in focus
While diversification of asset classes, management styles and money management may indeed serve to help you achieve greater consistency of returns year-over-year, key to long-term investment success is your ability to maintain a longer-term view and not try to outwit asset allocation by making short-term moves based upon timing (PDF), speculation or emotions (PDF).
