The growing importance of risk targeted funds – Defaqto’s research

Half of financial advisers believe Unitised Discretionary Fund Managers (UDFMs) will become increasingly popular among their clients over the next 12 months, the latest study commissioned by Heartwood Investment Management revealed.

The findings come as Defaqto, the independent financial research company, has published a new case study that seeks to provide clarity and structure to the increasingly complex world of outsourced investment solutions.

Defaqto’s case study highlights in particular the growing importance of UDFMs, which it believes should be viewed as a standalone sub-category of DFM alongside Managed Portfolio Solutions and bespoke portfolios.

“By unitising their portfolios and launching them as authorised collective investment schemes, managers such as Heartwood can offer investors access to the same investment management methodology irrespective of the size of investment,” the report reads.

According to Defaqto, other advantages of risk targeted UDFMs include: enabling clients to benefit from the same investment management style as their discretionary clients, enabling advisers to manage client expectations as strategies are based on their risk profiles; simplification of tax management for clients; removal of the VAT element from the annual management charge; and their suitability to platform administration.

In recognition of the quality of Heartwood Investment Management’s UDFM proposition Defaqto has awarded Heartwood’s Multi-asset fund (MAF) range a 5 Diamond Rating, which is the highest level of rating. Defaqto also highlights one of Heartwood’s key strengths as its focus on being risk-driven in its investment methodology. Additionally, three quarters (75%) of advisers share the view that they are increasingly attracted to investment strategies that are risk-targeted rather than benchmark-driven1.

In addition, Defaqto’s case study identifies Heartwood’s extensive reporting and its tight control of downside risk, which is becoming an increasingly important factor amongst advisers: two thirds (69%) of advisers believe that since the global financial crisis there has been a greater demand amongst clients for more sophisticated protection against downside risk.

Patrick Norwood, Insight Analyst at Defaqto, said: “As a 5 Diamond rated proposition, Heartwood’s UDFM offering represents a very strong proposition and provides consistent gradations of risk and return. Its concept of maximising returns to a risk targeted framework is not a typical methodology for investment managers.”

Mark Rockliffe, head of Professional Intermediary Sales at Heartwood Investment Management said: “At Heartwood we have developed a proposition that enables a wide range of investors to access a highly sophisticated investment platform regardless of the amount invested.

“Independent assessments such as the Defaqto Diamond Ratings are invaluable to advice firms when looking to segment a particular market and identify a high quality proposition.”

Heartwood is a global multi asset class investment manager that offers a choice of investment strategies designed to suit a range of risk appetites. Heartwood has close to £1.80bn of funds under management. Its Multi Asset Funds are available as funds and models on most platforms.

Click here to read full research.

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