What is a discretionary portfolio?
When building a UBS Discretionary Solution, the UBS client advisor first assesses your risk profile and takes the time to understand your needs and goals. From this, a strategic asset-allocation is agreed upon. This is your long-term investment strategy. The key question here is how much exposure you wish to have to stocks and how much to bonds.
Once this is decided, you leave the rest to the experts at UBS. To construct your portfolio, the portfolio manager takes the agreed strategic asset-allocation as a starting point, using these as tactical shifts in areas where there are perceived to be more opportunities. The portfolio manager will monitor your portfolio and carry out all the day-to-day investment decisions. You will receive monthly updates of your portfolio and all the transactions will be reflected in your statement.
Although you place the full management of your portfolio in the hands of UBS, there is a lot of flexibility in discretionary portfolios. There is a comprehensive range of strategies available and you can change your strategy at any time.
Finding the time to properly manage an investment portfolio can be difficult. Eric Sandlund discusses the possible advantages of a discretionary
portfolio and the benefits it brings to Asia-based investors.
Discretionary portfolios are well established in the US and Europe. What is the growing attraction of discretionary solutions in Asia?
There are many good reasons why clients choose a discretionary solution, but mostly they want more time to enjoy life! While every client would like their portfolio to be actively managed, they also realize that this can be extremely time consuming. In Asia alone, there are over 17,000 companies listed on the region’s stock markets. By choosing a discretionary solution, it is possible to get the best of both worlds—active management of the portfolio and more time to spend on the finer things in life.
How do discretionary portfolios fit into UBS’s core-satellite approach when constructing wealth management solutions?
A discretionary portfolio is ideal as a core investment. Remember, the core component of a portfolio is to satisfy long-term financial goals. Over the long run, portfolio returns are determined by strategic asset allocation, in other words; how much exposure an investor chooses to have in stocks and how much in bonds. However, all portfolios drift over time and clients may not rebalance their assets as frequently as they should.
At UBS, disciplined rebalancing is integral to the way we manage discretionary portfolios.
Could you further explain the investment process by which discretionary portfolios are managed?
Our investment process has been developed from our long and broad experience in managing discretionary portfolios. We make adjustments to the process from time to time but it has always been structured and disciplined.
The process starts at the UBS Chief Investment Office (CIO) which formulates macro views of the investment environment and identifies opportunities, themes and risks. The next step is to apply these views to every client. For example, if the CIO is positive on the “riskier” asset classes, what would it mean for a client with a conservative risk-profile holding a portfolio with investments in fixed income only? In many instances, this would more than likely mean tilting the client’s portfolio towards the sectors within fixed income that typically perform well when risk appetite in the market is strong.
The actual selection of securities is of course also critical. What exactly do we buy for our clients’ portfolios? We have specialized investment teams for this. The teams are made up of professionals who bring with them a great deal of experience in the financial markets. Another key feature of our investment process is risk management. We want to deliver the best possible returns to our clients but we do not believe in taking excessive risk to achieve this.
For clients in Asia, how do UBS’s discretionary solutions differ from other approaches in the UBS portfolio shelf?
From our conversations with clients, we realized that clients in Asia want to invest in Asia. More than that, they want to put Asia at the core of their portfolios. Part of this is simply a ‘home bias’, but the investment story for Asia also happens to be a compelling one. The emergence of the middle class in Asia means that the region has now entered the era of mass consumption and this provides the region with a powerful new engine of growth.
And we now have discretionary strategies that offer clients significant exposure to Asia.
Are the portfolio managers for discretionary solutions located here in Asia?
Yes, we have portfolio managers located in both our Singapore and Hong Kong offices. The team is a highly experienced one, led by professionals who have significant experience investing in Asian markets. Our portfolio managers are fluent in both English and Chinese.
Even where portfolios are managed in Asia, there is strong leverage off our global platform. Our tactical asset-allocation calls are in line with the Chief Investment Office and we work closely with our global offices.
Click here to see the interview with Eric