Investment research provider and ratings house van Eyk is addressing the challenges of the future by realigning its research resources and output with its long term asset allocation strategy.
van Eyk is boosting its research and ratings coverage of fund managers in asset classes that it believes will add most value to investor portfolios over the coming years. There will be more resources put towards coverage of investment strategies in the Alternatives sector, including commodities, gold and absolute return strategies. There will also be more coverage of emerging markets and small cap strategies.
van Eyk has also introduced volatility as a new asset class in its Alternative assets strategy to reduce the drawdown in portfolios and improve risk-adjusted returns.
This reflects changes arising from van Eyk’s Strategic Asset Allocation Review, which began in 2008 and was updated in late 2011. The Review reduced the emphasis on developed market equities by 35 per cent because of their relatively subdued return outlook in favour of asset classes that will have a greater ability to outperform in the volatile markets van Eyk expects.
Long-only developed market equities are now only 25% of the SAA.
van Eyk is also placing more emphasis on reviewing and rating fund managers in all sectors that have a greater capacity to outperform the market (those with a high tracking error), reviewing fewer managers who hug the market index.
van Eyk chief executive Mark Thomas said identifying managers who could outperform the market would be particularly important in the environment van Eyk is predicting for the next several years. He said too many investors were being encouraged to invest with fund managers who could only produce market-like returns. Worse still, if a few of these funds were combined in an investment portfolio, the variations in their performance could cancel out any additional returns that an individual manager might make.
“When fund manager strategies with a low tracking error are combined in a market environment that is volatile and lacks a strong trend, as we will continue to experience in the wake of the global financial crisis, investors can end up paying higher fees on what is essentially an expensive index strategy,” Mr Thomas said.
As a consequence, there will be a reduction in the number of long-only fund manager strategies covered by van Eyk, especially those with a tracking error of less than 4 per cent, although the research team will still devote about one quarter of its time to long-only strategies, compared with about two thirds previously.
“These measures give us the right strategy to address the challenges and opportunities that face our clients in the coming years,” Mr Thomas said.