Technology is a game-changer
for empowering IFA’s in volatile
markets

Independent Financial Advisors (IFA’s) themselves were forced to navigate these markets and help clients find an appropriate balance between risk and performance, but many found themselves struggling to find tools that gave them the right mix.

Typically, an Advisor will have a range of house view portfolios consisting of Collective Investment Scheme (“CIS”) funds that they would look to allocate their investors savings into. These can be broadly classed as “Aggressive”, “Moderate”, “Conservative” and “Cash”.

Should there be a change in market expectations, the Advisor has a choice to make; stick with the current allocation and be subject to all the market turmoil or trade into a lower risk portfolio in order to safeguard some capital at risk.

Discretionary Fund Managers (DFMs) are increasingly being used by Independent Financial Advisors to manage the investments and investment strategies in their clients' portfolios. Advisors can now outsource their investment decisions to third-party experts and take the guess work out of designing suitable client portfolios.

DFM’s engage with manager research, analysing funds and asset management companies, looking at both the quantitative and qualitative aspect of underlying single asset class funds as well as multi-asset funds. They make use of modelling systems that can optimise portfolios within given risk parameters that will provide IFA’s clients with the best prospective probability of achieving their investment objectives within an acceptable risk tolerance.

DFM’s however, all draw from the same list. Whilst there are over 1200 locally listed CIS funds, all DFM’s get to choose from the same funds.

But what if there was a way to choose a certain level of risk appropriate to your group of clients, to introduce certainty of minimum portfolio value at a future date or even having a rolling stop-loss on your portfolio? What if there were strategies that would rebalance the portfolio from market facing funds into cash-like funds when markets were volatile and then automatically reinvested back when market conditions calm down?

This is where innovative technology plays a role.

Absa CIB recently launched a range of solutions, within their Fund Linked Solutions Business (“FLS”), that provide investors with a sophisticated range of investment strategies that introduce the ability to optimally manage risk and return objectives on assets held.

By using bank-issued Notes, investment professionals now have access to a range of tools that have previously only been accessible to the likes of high net-worth investors and hedge fund managers.

Absa Fund-Linked Solutions includes four strategies: Delta 1, Risk Managed (Volatility Control), Protection and Leveraged which can be integrated into IFA strategies including Hedge Fund and a Model portfolio structure.

Let us consider these 4 typical portfolios that may be considered by an IFA

• Multi Asset High Equity Balanced fund
• Multi Asset High Equity Balanced Fund of Funds
• Retail Hedge Fund SA Long/Short Equity – Long Bias
• Model Portfolio consisting of an 80% allocation to a High Equity Fund of Funds and a 20% allocation to a Retail Hedge Fund.

Based on our research the table below shows the annualised performance, maximum drawdown, and volatility of each type over the last three years: