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Study highlights growing importance of risk targeted funds


Almost half (46 per cent) of financial advisers believe unitised discretionary fund managers (UDFMs) will become increasingly popular among their clients over the next 12 months, according to a study by Defaqto.

The Defaqto case study, which was commissioned by Heartwood Investment Management, has been designed to assist adviser firms to research and select the most appropriate outsourced investment manager by segmenting them into different categories based on their investment methodology. 
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.
Mark Rockliffe, head of professional intermediary sales at Heartwood Investment Management, says: “This case study underlines the growing importance of UDFMs as an outsourced investment solution and our research among advisers clearly shows their increasing popularity among clients. 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.”
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.
Three quarters (75 per cent) of advisers share the view that they are increasingly attracted to investment strategies that are risk-targeted rather than benchmark-driven.
Two thirds (69 per cent) 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, says: “For advisers who buy into a DFM’s style, philosophy and process, the range of client segments that can be supported by propositions with similar investment methodology is wider than ever before. While some advisers may be tempted to avoid a unitised approach, the reality is that most managers see the unitised offering as an extension of their core services. Unitised versions of the segregated portfolio services have created a market where a discretionary solution is finally within reach regardless of the size of investment.”

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