There are plenty of options in the world of investing today. From equities to leveraged options and complex interest rate swaps, there is a multitude of choices for investors to boost their wealth.
But when it comes to choosing the right combinations of these assets and using them in an intelligent manner, many struggle to do it right.
The verage DIY investor just hasn’t been able to perform at a high level and the evidence is clear on this point.
Openfolio, which has data of more than 70,000 people tracking the performance of their investment portfolio, showed that the average investor on Openfolio had a gain of roughly 5 percent in 2016. This was less than half the 12 percent total return of the S&P 500 last year.
Similarly, investors who bought mutual funds also did poorly. Dalbar’s Quantitative Analysis of Investor Behaviour 2015 survey showed that the average equity mutual fund investor underperformed the S&P 500 by a margin of 3.66 percentage points in 2015. Investors, on average, suffered a loss of 2.28 percent compared with a 1.38 percent rise in the S&P 500.
Against this backdrop, it is not that surprising that many people are turning to investment management professionals to help manage their money for them.
Leaving it to the professionals
At Bank of Singapore, we’ve seen a clear rise in the demand for discretionary portfolio management (DPM)* services among high net worth individuals.
Discretionary portfolio management is a form of investment management in which buy and sell decisions are made by the portfolio manager for the client’s account. In this way, the portfolio manager is empowered to make decisions for the client under a given mandate predetermined by the client.
Since 2010, we have seen a ten-fold rise in the demand for discretionary portfolio management services. Of the US$89 billion we manage (as of 30 June 2017), about 7 per cent of funds - or in excess of US$6 billion - are managed under discretionary portfolio management.
The demand has also continued to rise steadily. Over the last year till 31 March 2017, funds under discretionary portfolio management has jumped 30 percent.
This trend is taking place even among Asian investors, who have traditionally tended to be more hands-on and involved in their investing habits. Many of them are turning to professional fund managers to manage their money and investments.
In short, people are relying on professionals to do the job.
And if you think about it, it’s not surprising. In virtually every other part of our lives, we depend on professionals, from the doctors we seek advice from or the teachers we leave our kids with.
Why should it be any different with the hard-earned money we make?
Some might ask a simple question: Why not just park the funds with a mutual fund manager? After all, they too are professionals and many of the top mutual fund managers continue to do extremely well.
The difference between the discretionary portfolio management services and a mutual fund is the level of customisation both offer.
Mutual funds are off-the-shelf products, which may or may not fit an individual’s investment profile. One may of course build a portfolio of different funds to suit his needs.
But this portfolio is likely to only approximate the individual’s risk profile, at best. At worst, it could run counter to what his investment objectives are, if the fund selection is poor.
DPM is all about customisation. Think of DPM teams as tailors who measure an individual’s height, shoulders, waist and chest. The result is a product that suits him to a tee, snugly fitting his profile to give the best results.
And since every individual is unique, each portfolio created is also intended to fit the objectives of the investor, whether it is wealth preservation or setting aside funds for the next generation.
At Bank of Singapore, we have teams of analysts that support the decision making of DPM portfolio managers - more than 20 analysts covering stock markets, fixed income and commodities, among others. All of them are scanning for opportunities.
Our portfolio managers are able to access a wide range of markets and assets such as private equity, which are not easily available to the average investor.
We also get data feeds and information that retail investors may not get.
The wide range of access also means that portfolio managers can provide strong diversification for a client’s portfolio, a key advantage in these volatile times.
DPM also provides the kind of flexibility that many investors are looking for. Even though we believe the best way to invest is for the long-term, clients have approached us to build portfolios for specific objectives and for shorter term objectives as short as a five-year term.
Many of the clients who opt for DPM are successful entrepreneurs, who may not have the time to pay close attention to their portfolio. They are much more focused on building their businesses.
On this front, DPM makes perfect sense. Portfolio managers act on a given mandate agreed with the client and make decisions to buy or sell on their behalf. Portfolio managers regularly update the client on the investment decisions made.
Delegating the investment decision to the professional also takes the emotion out of investing. We embark on a disciplined investment process, one that many of our clients greatly value.
The uncertain global macro environment makes it clear that a hands-on approach is required to create a strong and growing portfolio. But instead of trying to do it all by yourself, maybe the better approach is to leave it in the hands of the professionals.
*DPM is only available at Bank of Singapore Limited, Singapore.
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