Absa Discretionary Portfolios - Wealth and Investment Management
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Wealth and Investment
Management
Absa Discretionary Portfolios
2 | Absa Discretionary Portfolios
Contents
1. Seamless integration between Absa and Barclays 04
-- Introduction
-- Advice is our core value proposition
-- Sculpting wealth solutions around you
2. Our investment philosophy 06
3. Financial personality assessment: 08
-- Your financial personality goes beyond traditional risk profiling
-- The Wealth Management behavioural approach to investing
4. Strategic asset allocation: Managing risk through diversification 09
5. Fund manager selection process 10
-- Quantitative manager screening
-- Data screening
-- Detailed quantitative analysis
-- Ongoing monitoring and review
-- Qualitative assessment and operational due diligence
6. Portfolio construction and review 12
7. Sculpting solutions that reflect your financial personality 13
8. FAIS Act Notice and Disclaimer 14
Absa Discretionary Portfolios | 3
Seamless Integration Between Absa and
Barclays
Introduction In our business model the Absa Advisor
Absa Bank Ltd, affiliated with Barclays, serves high representative fulfils a powerful facilitative role
net worth and family office clients in South Africa whereby highly specialised advice services and
by providing holistic international wealth solutions expertise can be brought to bear on an individual
using best of breed products, wealth management client’s needs.
and investment management as well as structured
In our philosophy, advice is inextricably linked to
lending. With the backing of Absa and Barclays, we
product solutions that best address our clients’
offer clients a sophisticated, integrated wealth
needs. This stands in contrast to existing business
management proposition centred on the individual,
models, which tend to more transaction focused. Our
whilst leveraging the depth and breadth of its global
approach emphasises independence of advice and is
and local expertise.
based on a best of breed concept, which allows us
Advice is our core value proposition to offer our clients the best investment opportunities
Advice is our core value proposition and is deeply available both within and outside Barclays and Absa.
embedded in our comprehensive wealth management Our commitment is to deliver a durable wealth
service. Whilst the nature of investment advice management proposition and to continuously seek
is multi-faceted and dependent on an array of out new bespoke opportunities that meet our clients’
professional services, we believe that the relationship needs. Whilst striving to define and remain at the
between advisor and client remains the key focal cutting edge of global best practice, our business
point. culture remains rooted in the strength of our
relationships with our clients.
Sculpting wealth solutions around you
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4 | Absa Discretionary Portfolios
Absa Discretionary Portfolios | 5
Our Investment Philosophy
We understand that wealth means different things to Constructing investment portfolios around bespoke
different people and by using our collective expertise requirements involves a two-pronged approach:
we can help you focus on what is important to you incorporating client profiling and asset optimisation.
and help you create an investment portfolio that The first prong is client-centric and specific to
supports your circumstances, objectives and financial individual circumstances, while the other relates to
personality. investment opportunities, manager selection and
risk.
You and Your Advice with Global Tailored Portfolio Customised
Wealth Perspective Construction Management
Research and Identifying the right
Total Wealth Review Rebalancing
Strategy asset allocation for you
Fine-tuning:selecting
Financial Personality Monitoring and
Asset allocation the right
Assessment reporting
implementation
Consult Advise Implement Review
In the process of creating integrated client solutions, The product of the behavioural and financial
we take into account the behavioural attributes modelling exercise is a unique client profile which
and preferences of each client in combination combines return objectives, the client’s willingness
with modelling individual circumstances. Financial and ability to take risk, specific portfolio constraints
modelling is a continuous process of optimising as well as individual preferences.
objectives within a given set of constraints.
6 | Absa Discretionary Portfolios
Absa Discretionary Portfolios | 7
Financial Personality Assessment:
Understanding You
Your financial personality goes beyond traditional are assessed. It identifies your attitudes towards
risk profiling markets, fund manager skill and desire to be involved
Defining your risk profile involves assessing both in the decision-making process. Many of these
behavioural characteristics and situational factors in attributes tend to be stable over time.
order to determine both your ability and willingness to
Situational profiling involves assessing your personal
assume risk. Behavioural attributes define willingness
circumstances. Present and future assets and liabilities
to assume risk, whilst individual circumstances
are defined and incorporated within the context of
dictate ability to assume risk.
stated objectives in order to identify the financial
Behavioural profiling identifies psychological patterns, ability to assume risk. This ability of a client to assume
characteristics and the influence they have on risk is dynamic and usually changes as circumstances
investment decision-making. Through this process, change.
your subjective attitudes and tolerance towards risk
The Wealth Management behavioural approach to investing
Traditional Approach ABSA Behavioural Approach
Risk Tolerance Questionnaire Financial Personality Assessment
Risk attitude Decision style
Dynamic, Active or Passive
High High High
Greater belief in skill signals a
willingness to invest in actively
managed solutions such as Dynamic
and Active, with Dynamic being a
extended belief in skill.
Lower belief in skill indicates a
Perceived financial expertise
preference for Passive as a portfolio
Desire for delegation
Market engagement
solution.
Risk tolerance
Belief in skill
Composure
Involvement
Lower levels of delegation signal
willingness to be more involved
with managing overall portfolio
and taking greater responsibility for
portfolio performance. A greater
allocation to self-directed satellite
holdings could suit this personality
Low Low Low
trait.
Smoothing Gradual Phased Investment Complexity
Smoothing aims to limit volatility Investment low market engagement Clients differ in terms of how
or short-term losses, usually at the means you may be less comfortable comfortable they are with investment
cost of sacrificing some upside in committing to investing. You desicions, or with technical
favour of comfort with the journey. could benefit from phasing your or complicated strategies. With
Volatility adjusted, absolute return investment over time to reduce suitable Strategic Asset Allocation
strategies or structures should timing risk. as a starting point, the investment
be considered in addition to a proposal can stretch from simplistic
Discretionary Solution. to intricate.
8 | Absa Discretionary PortfoliosStrategic Asset Allocation:
Managing Risk Through Diversification
Asset allocation and diversification are important While asset allocation is the basis of long-term
sources of investment returns returns, diversification can help control portfolio
Asset allocation is the process of allocating a risk. Risk is inherent in investing and can never be
proportion of investment capital to the various asset completely removed which is why diversification
classes, including equities, fixed income, property is crucial when building a portfolio. By customising
and cash on a local and international basis. Each asset diversification, we can fine tune the implicit risk in a
class has different risk and return characteristics. portfolio and when implemented correctly, can not
Furthermore, diversification benefits are achieved as only reduce the risk, but can also increase the return.
asset class performances are not perfectly correlated,
Our asset allocation process is dynamic and forward
and as such, asset allocation is the primary driver
looking
of both investment performance and portfolio
Experience and judgement are essential to crafting
risk. Efficient asset allocation aims to maximise the
appropriate strategies, yet equally critical is a sound
portfolio return for each given level of risk.
basis for portfolio construction that is supported
An investor’s strategic asset allocation forms the by evidence and backed by proven theory. Ours is
benchmark against which the actual portfolio is rooted in Modern Portfolio Theory, which assumes
constructed. Weightings are a function of expected investors are risk averse and that they will only take
returns and risk for each asset class. We adopt a on increased risk if expected to be compensated for
risk-based approach to determine the correct asset it. We have embedded this thinking by employing the
allocation strategy, which is critical to aligning assets market-leading Black-Litterman model.
to long-term investment objectives. Movements in
the prices of underlying assets may also require a
periodic rebalancing of the portfolio.
The Black-Litterman methodology was first developed in the 1990s, following
Black-Litterman rigorous stress-testing, it is now recognised as market-leading. It addresses
Optimisation weaknesses of traditional optimisation such as over-reliance on subjective views and
the need for excessive constraints in modelling.
A suitable strategic asset allocation becomes the reference point against which
Strategic Asset your portfolio is managed and balanced over time. For any given investor, the
allocation optimal strategic asset allocations a confluence of client-specific circumstances and
extensive research into asset class optimisation.
Review
The blend of the implied returns and the investment Committee’s views aims to
Tactical Asset achieve optimised returns for each given risk level. The results in larger/smaller
Allocation positions in each asset class, market or region (compared to the initial benchmark
allocation).
Absa Discretionary Portfolios | 9Fund Manager Selection Process
In selecting underlying investment managers we have Ongoing monitoring and review
a process that is systematic, disciplined and robust. The information gathered from the quantitative
We identify unique opportunities and investment process and the qualitative evaluation is integrated
managers that have a demonstrated track record of and analysed resulting in a recommended fund list as
investment excellence and sound risk management. well as a watch list of funds. To ensure that the range
Our analysis combines a qualitative approach with a of funds meets our clients’ needs criteria such as
rigorous underlying quantitative screening process. asset classes, geographic regions, investment styles
and fund managers are taken into consideration.
Quantitative manager screening
All recommended funds are monitored on a regular
Although past performance does not necessarily
basis in terms of the following aspects:
provide a good indication of future performance,
it is recognised that investors regard performance • Significant changes in performance ratings
as an important measure in evaluating the quality
• Changes within the asset management team
of advice and the extent to which their investment
expectations have been met. Taking this into • Regulatory requirements
consideration the analysis of past performance of • Changes to underlying sector exposure
the unit trust universe provides the starting point for
identifying a short list of suitable funds. • Potential financial market impact
Data screening Qualitative assessment and operational due diligence
Only funds with an appropriate investment track The process of selecting appropriate fund managers
record are included within the initial database. requires not only performance and other quantitative
Thereafter, our initial filtering process focuses on the measures but also knowledge of aspects that are
two key characteristics – consistent performance somewhat objective. It is important to understand
and superior risk elements. Qualifying funds are the investment manager’s philosophy. An in depth
tested against metrics such as maximum drawdown analysis consists of discussions with the key decision
and recovery time, alpha generation in bull, bear and makers, together with an analysis of the company
flat markets as well as tracking error / correlation to structure, investment team, investment process as
an appropriate benchmark. well as understanding the manager’s competitive
advantage and examining their risk management
Detailed quantitative analysis and control procedures.
Once the initial quantitative screening process
has been completed a more detailed quantitative
and qualitative analysis of the qualifying funds is
undertaken. Some of the quantitative metrics include
rolling performance and volatility figures, risk-
adjusted returns and information ratios.
Organisations And Operations Investment Team Investment Process
This analysis covers the ownership Analysing the team involves a focus The consistency of the application of the
structure of the business, staff on the composition of the overall investment process is analysed, together
remuneration and incentives, staff investment team, the identification of key with the consistency of the portfolio
turnover, succession planning and individuals, formal qualifications, relevant when compared to the stated process.
resource management. investment experience and quality of
research. Asset managers with unique investment
In addition, computer systems, backup processes are favoured.
and recovery processes and compliance
processes are reviewed. Their portfolio construction and review
processes are also analysed.
Managers are assessed according
administration capabilities, as well as the
quality, experience and depth of their
back of office staff.
10 | Absa Discretionary PortfoliosAbsa Discretionary Portfolios | 11
Portfolio Construction and Review
• Once manager selection criteria have been met, an in-depth analysis on specific fund mandates is
required to test for suitability for inclusion in our portfolios
• Of critical importance are factors such as tracking error to ensure constancy with our portfolio
Fund Selection
objectives and mandates
• Current asset allocation in our Active and Dynamic solutions is required to understand the direction
and extend of active positions
• The portfolio construction processes aims to achieve optimal blending of approved managers to
give effect to the strategic asset allocation and investment approaches of out solutions
• This processes needs to be especially rigorous and precisely engineered given the use to which the
Portfolio Construction
funds will be used
• Portfolios need to be constructed so that efficiency in risk and return is continuously optimised
within our solutions
• Risk is managed pro actively rather than reactively. Portfolios are monitored to ensure that they are
managed in accordance with their stated objectives and mandates
Portfolio Monitoring and • Should performance of a specific manager become uncompetitive and there is reason to suspect
Risk Management that this might be sustained, the manager will be removed from the portfolio
• Systematic rebalancing ensures continuous alignment with the respective strategic asset allocation
towards which the fund is managed
The final phase involves the culmination of all the aspects in the Portfolio Management process which brings
forward a solid framework in which the portfolios are managed.
12 | Absa Discretionary PortfoliosSculpting Solutions That Reflect Your
Financial Personality
Three distinct investment approaches that speak to individual preferences
Passive Active Dynamic
Strategy
Objective The Passive approach The Active approach The Dynamic approach
intends to achieve aims to achieve market- seeks market-related
market-related returns related returns through returns through the use
through the use of the use of single asset of actively managed
low cost index tracker class fund managers single and multi asset
funds, while minimising who pursue excess class fund managers
deviations from the returns over a defined who pursue excess
benchmarked indices benchmark (alpha). returns (alpha) over
(tracking error). Investment returns will a defined benchmark
comprise market return through their stock
(beta) and alpha, which selection and market
is a reflection of the stock timing capabilities.
selection capabilities
of the underlying fund
managers.
Asset allocation Strategic Strategic Strategic and Tactical
Security selection Passive Active Active
Actively-managed, single
Low-cost index Actively-managed, single
Underlying funds and multi-asset class
trackers asset class funds
funds
Mandate flexibility Little Moderate High
High
Market returns (beta) Market returns (beta),
Market returns and security selection market timing and
Source of return
(beta) (alpha) security selection
(sources of alpha)
Similar to benchmark risk
Very close to Moderately variable
Risk returns (beta) and security
benchmark risk around benchmark risk
selection (alpha)
Absa Discretionary Portfolios | 13FAIS Act Notice and Disclaimer This brochure/document/material/report/communication/commentary (this commentary) has been prepared by Absa Global Research and Investments Africa, a unit within Absa Bank Limited – a registered bank in the Republic of South Africa with company registration number: 1986/004794/06 and with its registered office at: Absa Towers East, 170 Main Street, Johannesburg, Republic of South Africa (Absa). Absa is regulated by the South African Reserve Bank. Absa has issued this commentary for information purposes only and You must not regard this as a prospectus for any security or financial Product or transaction. Absa does not expressly, tacitly or by implication represent, recommend or propose that the securities and/or financial or investment Products or services (the Products) referred to in this commentary are appropriate and/or suitable for Your particular investment objectives or financial situation or needs. This commentary is not, nor is it intended to be, advice as defined and/or contemplated in Financial Advisory and Intermediary Services Act, 37 of 2002, (FAIS Act) or any other financial, investment, trading, tax, legal, accounting, retirement, actuarial or other professional advice or service whatsoever (advice). You have to obtain Your own advice prior to making any decision or taking any action whatsoever based hereon and Absa disclaims any liability for any direct, indirect or consequential damage or losses that You may suffer from using or relying on the information contained herein even if notified of the possibility of such damage or loss and irrespective of whether or not You have obtained independent advice. This commentary is neither an offer to sell nor a solicitation of an offer to buy any of the Products, which shall always be subject to Absa’s internal approvals and a formal agreement between You and Absa. Any pricing included in this commentary is only indicative and is not binding as such on Absa. All the risks and significant issues related to or associated with the Products are not disclosed and therefore, prior to investing or transacting, You should fully understand the Products and any risks and significant issues related to or associated with them. The Products may involve a high degree of risk including, but not limited to, the risk of (a) low or no investment returns, (b) capital loss, (c) counterparty or issuer default, (d) adverse or unanticipated financial market fluctuations, (e) inflation and (f) currency exchange. The value of any Product may fluctuate daily as a result of these risks. Absa does not predict actual results, performances and/or financial returns and no assurances, warranties or guarantees are given in this regard. The indicative summaries of the Products provided herein may be amended, superseded or replaced by subsequent summaries without notice. The information, views and opinions expressed herein are compiled from or based on trade and statistical services or other third party sources believed by Absa to be reliable and are therefore provided and expressed in good faith. Absa gives no recommendation, guide, warranty, representation, undertaking or guarantee concerning the accuracy, adequacy and/or completeness of the information or any view or opinion provided or expressed herein. Any information on past financial returns, modeling or back-testing is no indication of future returns. Absa makes no representation on the reasonableness of the assumptions made within or the accuracy or completeness of any modeling or back-testing. All opinions, views and estimates are given as of the date hereof and are subject to change without notice. Absa expressly disclaims any liability for any damage or loss as a result of errors or omissions in the information, data or views contained or expressed herein even if notified of the possibility of such damage or loss. Absa does not warrant or guarantee merchantability, non-infringement of third party rights or fitness for a particular use and/or purpose. Absa, its affiliates and individuals associated with them may (in various capacities) have positions or deal in securities (or related derivative securities), financial Products or investments identical or similar to the Products. Absa intends to make this commentary available in South Africa to persons who are financial services providers as defined in the FAIS Act, as well as to other investment and financial professionals who have professional experience in financial and investment matters. You should contract and execute transactions through an Absa Bank Limited branch or affiliate in Your home jurisdiction unless local regulations permit otherwise. Absa Bank Limited is a licensed Financial Services Provider. Absa has taken no action that would permit a public offering of the Products in any jurisdiction in which action for that purpose is required. The Products shall only be offered and the offering material shall only be distributed in or from any jurisdiction in circumstances which will result in compliance with any applicable laws and regulations and which will not impose any obligation on Absa or any of its affiliates. In this commentary reference is made to various indices. The publishers and sponsors of those indices (the publishers and sponsors) do not endorse, sponsor or promote the Products and make no warranty, guarantee, representation or other assurance (express, tacit or implied) relating to the indices. The publishers and sponsors make no warranties (including merchantability and fitness for purpose). The publishers and sponsors shall not incur any liability in respect of any damage or loss that You may suffer as a result of investing in a Product even if notified of the possibility of such damage or loss. The publishers and sponsors may amend the composition or calculation of indices and have no obligation to have regard to Your or Absa’s need in this regard. The information and views contained in this commentary are proprietary to Absa and are protected by copyright under the Berne Convention. In terms of the Copyright Act, 98 of 1978, as amended, no part of this commentary may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, electronic scanning, recording, or by any information storage or retrieval system, without the prior permission in writing from Absa. The illegal or attempted illegal copying or use of this information or views may result in criminal or civil legal liability. 14 | Absa Discretionary Portfolios
Absa Discretionary Portfolios | 15
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