Marcus Brookes, Head of Multi-Manager at Schroders, talks to Sue Whitbread about how the combination of Schroders fund management expertise and Dynamic Planner’s risk targeting and asset allocation model has led to greater choice for advisers

SW: Marcus, could you start us off by talking us through your approach to managing the portfolios for the relatively new Schroder Dynamic Planner fund?

MB: The approach that we use for the Schroder Dynamic Planner range of five portfolios utilises the same philosophy and process that we use on the Schroder Multi-Manager Diversity Range. This is to formulate a market view and then invest with the very best fund managers that are positioned to benefit from those market conditions. Put simply, where we find assets that we are bullish on, we seek out the best managers in that area that are bullishly positioned. For the Schroder Dynamic Planner funds we can implement these views whilst ensuring that the funds remain within the volatility parameters as set by Distribution Technology’s Dynamic Planner, which is an important feature of these funds. The existing Schroder Multi-Manager Diversity range of funds is risk rated, which means they are assigned a rating that reflects their expected volatility due to the risks they are currently taking. Importantly though, this range of funds is not targeting a certain level of risk rather they target outperformance of their benchmarks which could see a 4 rated fund become 3 or 5 depending upon the market conditions.

The new Schroder Dynamic Planner range has been designed to enable advisers who use Dynamic Planner, the market leading provider of digital risk profiling and financial planning services, to risk profile their clients to select investment solutions that are suitable for their clients’ requirements. The funds target Dynamic Planner risk profiles from level 3 to level 7. The range commits to being risk managed, so for instance the Schroder Dynamic Planner 4 fund will always be managed to achieve a risk outcome that stays within the boundaries of the Dynamic Planner risk level 4. This is where our partnership with Dynamic Planner has proved to be so important, as we can use their data to model the fund’s potential transactions before we implement them.

We have also chosen to cap the cost of the Schroder Dynamic Planner range at 0.99% OCF to offer a lower cost solution for advisers. This means we have chosen to use some passive funds alongside active funds, to enable the costs to be reasonably low for a multimanager fund. We have always been able to select from the whole of the market, which has meant using some internal funds which we have also done for this new range. Schroders has a policy of no “double dipping” which means there is no annual management charge (AMC) made of these funds. The remainder of the Schroder


Our partnership with Dynamic Planner has proved to be so important, as we can use their data to model the fund’s potential transactions before we implement them

Dynamic Planner funds are invested in third party funds and there is a huge overlap with the Diversity range in the names that are used, with funds from Blackrock, Jupiter, Morgan Stanley, GLG, Hermes and Invesco for instance.

SW: What are you doing with your portfolios at the moment? Where do you see the best opportunities? What do you see as the main threats to performance?

MB: At the moment, we remain comfortable that global growth is ‘ok,’ monetary accommodation should continue to be removed and inflation is likely to tick upwards. This points to a value skew across equity markets and a preference for non-US assets over the US at present. The US dollar looks likely to remain weak as falling foreign demand and both a widening budget deficit and trade deficit put downward pressure on the currency. Our fixed income holdings remain in selective, flexible mandates with an overall underweight to duration given our current expectations for gradually rising interest rates.

Our alternatives are there to provide protection should either equity markets or fixed income markets wobble. Given the extended nature of a wide range of asset market valuations, cash / short term liquidity positions act as a counterbalance to the risk we are willing to take elsewhere in the portfolio. But, whilst we have expressed concern about certain market levels, our positioning does have the ability to outperform in rising or falling markets should the shift from growth to value continue.


So, where might we be wrong? One of the larger risks to markets is the potential for economic growth to roll over, given the extended nature of this economic cycle. Recent survey data in Europe and the US has started to come off its recent highs and this is something we will continue to monitor closely. We firmly believe that the current portfolio is appropriate in our desire to provide investors with strong, longterm, risk-adjusted returns.

SW: When it comes to risk targeting, how much of a constraint is that for your overall asset allocation and fund selection decisions within the actively managed portfolios?

MB: As active managers, we were reticent to launch a risktargeted fund range that, on the face of it, would take away our ability to add value to clients. There was a misunderstanding, shared by us, that as markets become more volatile and your risk statistic rises, you would be forced to sell in order to cut risk. Resulting in selling into a falling market and buying into a rising market, which is the opposite of what you would expect to do.

However, after many meetings with Distribution Technology we’ve got a much better understanding of things. There are risk benchmarks, and as the volatility rises and falls with the market we can track those benchmarks. Our volatility would move around but over the long term it would remain within target, meaning we can comfortably remain inside the volatility limits, whilst maintaining a high level of flexibility in our asset allocation.


A key factor in all of this, and one that only exists due to the close relationship, is the access we have to their volatility data. This enables us to adjust the portfolios on a day by day basis if needed. This is a huge advantage when compared to the competitor set, who instead receive data on a quarterly basis, potentially resulting in the need to rebalance portfolios significantly in order to remain within the volatility limits.

SW: Your relationship with Dynamic Planner is an interesting one. How does that work? How does the technology help you to deliver benefits for advisers and their clients?

MB: The partnership with Dynamic Planner was very much a case of ‘right place right time’, for them and us. We had been discussing the idea of launching a risk-targeted range of funds for some time, as we had watched this part of the industry grow and it seemed the natural step.

Distribution Technology bring an awful lot of expertise and technology to the table, having established themselves as the market leader in fund risk-profiling. One of the greatest benefits to using this fund range is the enhanced reporting tool that investors will receive. It’s of a very high standard and can have each adviser’s logo on it, meaning it really feels like a private client experience. This really helps the fund range to stand out from the crowd.


Schroder Dynamic Planner range risk factors

  • Past Performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall.
  • A failure of a deposit institution or an issuer of a money market instrument could create losses.
  • The counterparty to a derivative or other contractual agreement or synthetic financial product could become unable to honour its commitments to the fund, potentially creating a partial or total loss for the fund.
  • A decline in the financial health of an issuer could cause the value of its bonds to fall or become worthless.
  • The fund can be exposed to different currencies. Changes in foreign exchange rates could create losses.
  • Emerging markets generally carry greater political, legal, counterparty and operational risk.
  • Equity prices fluctuate daily, based on many factors including general, economic, industry or company news.
  • High yield bonds (normally lower rated or unrated) generally carry greater market, credit and liquidity risk.
  • A rise in interest rates generally causes bond prices to fall.
  • In difficult market conditions, the fund may not be able to sell a security for full value or at all. This could affect performance and could cause the fund to defer or suspend redemptions of its shares.
  • Failures at service providers could lead to disruptions of fund operations or losses.

Marcus Brookes heads the MultiManager Team at Schroders having joined from Cazenove. He graduated from the University of Sterling with an MSc. in Investment Analysis. He brings over 20 years’ investment experience to the team.

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