Accurately target Dynamic Planner risk levels while drawing on the expertise of a proven investment team with Brooks Macdonald’s Volatility Managed Portfolio Service (VMPS)

Understanding risk tolerance is a core skill for any financial planner. It’s one of the reasons why more than 6,500 advisers use Dynamic Planner, giving them access to award-winning psychometric risk-profiling questionnaires to enhance the accuracy of their client profiles. Planners seek out the best tools available to determine an individual’s risk preferences – so it’s logical to demand the same rigorous approach to investment.

Brooks Macdonald’s Volatility Managed Portfolio Service (VMPS) is an actively managed multi-asset solution that gives advisers access to our robust and repeatable centralised investment process (CIP) while specifically targeting the volatility boundaries of Dynamic Planner profiles 3-7. Alignment with these profiles is embedded in the funds’ mandates, and adherence to the risk levels is independently verified by Dynamic Planner each quarter.

The VMPS portfolios are diversified across a broad range of asset classes, with asset allocation views informed by Brooks Macdonald’s Asset Allocation Committee. Dynamic Planner risk profiles provide ‘top down’ guidance of the asset allocation of each portfolio, while Brooks Macdonald’s ‘bottom up’ research and risk controls provide accountability. In recent years, this process has helped to avoid liquidity traps such as property fund closures and the Woodford fund controversy.

In the present environment, we believe ‘balance’ will be a watchword for asset allocators. The recent emergence of the Omicron variant of COVID-19 offers a timely reminder of how rapidly the market mood can shift, highlighting the value of an investment process shaped through many previous market cycles. Below we explain the forces that have shaped market returns this year, and how the VMPS funds responded to the changing backdrop.

Equities: Cyclical recovery and long-term drivers of returns

One notable feature of 2021’s equity market has been the oscillation between growth and value stocks, making a balanced approach important. In the years leading up to the pandemic, growth stocks led the way, driven by the ever-increasing reach of the technology giants into all areas of life, coupled with low interest rates that made high valuations easier to justify.

While these supportive factors for growth stocks have remained in play, and tech sector earnings have appeared to defy gravity in many cases, value stocks have delivered almost identical returns in the year to date. This long-neglected part of the market was primed for a rebound amid the economic growth that was facilitated by the deployment of highly effective vaccines, together with unprecedented levels of monetary and fiscal stimulus.

Within the VMPS, active asset allocation lifted equity returns by capturing the outperformance of cyclical sectors amid the brightening outlook for 2021. In the UK, our positioning in the JOHCM UK Equity Income Fund was beneficial, while in Asia ex-Japan – a region that has struggled to maintain the momentum it generated in 2020 – our positioning in the Federated Hermes Asia ex Japan Equity Fund contributed.

Another driver of returns this year has been our continued exposure to thematic equities. Given the prominence of short-term threats and opportunities around potential interest rate rises or new variants of COVID-19, it’s worth remembering that the long-term investment theses around areas such as health care and technology have remained intact, and in some cases have strengthened.

Fixed income: Pockets of value in a tough year

2021 has thus far not been kind to holders of government bonds. The increasing mood of optimism led investors to prefer riskier assets that would benefit from stronger global economic growth. Rising inflation as a result of heightened demand and supply chain bottlenecks, meanwhile, steadily lifted expectations of interest rate rises.

With developed market government bonds delivering negative total returns in the year to date, our preference for corporate debt within the VMPS funds proved supportive. Given mounting expectations of interest rate rises, short duration corporate bonds outperformed longer duration debt. Again, the VMPS funds were able to capitalise on this Asset Allocation Committee-led view.

On a longer-term view, balancing equity and bond risk exposures has led to cumulative outperformance from the VMPS funds against both their benchmarks and their peers. With a track record of strong performance and a competitive fee structure, the VMPS funds ensure measurable alignment with the Dynamic Planner risk levels combined with the expertise of an experienced investment management team.

Please get in touch with your Brooks Macdonald representative or send us an email at to find out how we can help guide your investment journey. We would be delighted to hear from you!

Important information
Investors should be aware that the price of investments and the income from them can go down as well as up and that neither is guaranteed. Past performance is not a reliable indicator of future results. Investors may not get back the amount invested. Changes in rates of exchange may have an adverse effect on the value, price or income of an investment. Investors should be aware of the additional risks associated with funds investing in emerging or developing markets.

The information in this document does not constitute advice or a recommendation and you should not make any investment decisions on the basis of it. This document is for the information of the recipient only and should not be reproduced, copied or made available to others.

Brooks Macdonald is a trading name of Brooks Macdonald Group plc used by various companies in the Brooks Macdonald group of companies.

Brooks Macdonald Group plc is registered in England No 4402058. Registered office: 21 Lombard Street London EC3V 9AH.

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Brooks Macdonald Asset Management (International) Limited is an authorised Financial Services Provider, regulated by the South African Financial Sector Conduct Authority. Registered in Guernsey No 47575. Registered office: First Floor, Royal Chambers, St. Julian’s Avenue, St. Peter Port, Guernsey GY1 2HH. Principal place of business in Jersey: 5 Anley Street, St. Helier, Jersey JE2 3QE.