The performance of Zenith’s Elite Blend Models since their inception in 2009 is testament to this. The Elite Blends models are used by a range of Zenith’s Financial Planning clients and represent Zenith’s best case asset allocation and manager selection decisions, made by Zenith’s Investment Consulting team, led by Glen Franklin and Ben Davis.

Each of these models has outperformed competitors, and diversified fund benchmarks, since 2009 and have performed strongly over the past 12 months in a tough equity environment – with manager selection a key to generating this outperformance.

The High Growth model has returned 10.04% after fees over the past year, 4.99% ahead of its benchmark and 4.90% ahead of the median Diversified High Growth Fund.

Most of this added value (4.93%) has come from manager selection in the Australian Shares sector, with all funds in this sector outperforming – the most notable being the Perpetual Pure Microcap Fund (+37.08% over past year) and the OC Premium Small Companies Fund (+22.05%). Manager selection in the Alternatives sector also contributed to outperformance.

The return, risk and drawdown profile of these portfolios are shown below.

Performance

Zenith Head of Consulting Ben Davis said: “It’s pleasing to generate such strong performance in a tough environment for most traditional asset classes. Our preparedness to back high quality managers with flexible long short or concentrated mandates and target managers on the rise with low levels of funds under management has strongly driven this outperformance.

“Manager Selection is highly dependent on our funds research effort and our research team has been instrument in finding these opportunities to help our clients achieve these outcomes.

“Many of our financial planning groups that take model portfolios have between $200 and $500 million in funds under management and at these levels they can target high quality managers with concentrated mandates and low levels of funds under management. These are strategies that institutional funds often cannot access due to their large size. This is an often overlooked advantage for financial planners.”

Retail Platforms

According to Davis, platform choice can also have a strong bearing on client outcomes.

Low cost platforms tend to have lower quality investment menus and in our experience this can impact returns by more than the fees they save. Models we have created for these lower cost platforms in our experience have underperformed our Elite Blend Models by up to 3-4% p.a. In our view, these outcomes are not in the best interest of clients and emphasise that greater importance should be placed on platform selection.”

“Platform operators also need to be prepared to include highly active strategies of quality investment managers across a range of sectors. So much focus is placed on avoiding manager “blow ups” that the higher risk of these strategies sees them quite often overlooked. In our view if you don’t include these strategies with a greater chance of outperformance, you are compelling your clients to mediocre outcomes. In fact, on some platforms, clients may be better off using readymade diversified multi-manager funds than building their own portfolios.

“There’s no doubt mistakes will be made with manager selection – we have fired a number of poor performing managers over the years that were impacting client returns. The key is to weight the risky strategies at the appropriate level and have a highly diversified asset allocation approach, so that no one decision significantly impacts client outcomes.”

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