MDA Feature – 2020 round-up
Managed Discretionary Accounts (MDAs) are a relatively new investment solution available to consumers and financial advisers following recent advances in platform technology. MDAs are constantly evolving and are at a point where advisers can offer clients a broad range of investment assets while clients have complete visibility of the investments held in their portfolio.
According to the December 2019 IMAP/Milliman managed account FUM census, the sector grew in assets by 27.6% year-on-year growth, taking MDA assets well above $80 billion. The Institute of Managed Accounts (IMAP) estimates that growth will run at about 40% a year for at least the next two years, taking the industry to more than $115 billion by 2020.
The Inside Network has compiled a database of known MDA and Managed Investment Schemes (MIS) together with performance data. Although the research houses don’t cover the entire MDA/MIS space, some of the wealth platforms may store performance data if they hold them. Either way, here are the top and bottom-performing Balanced portfolios for the month of December.
Top 5 and Bottom 5 ‘Balanced’ MDAs
Annual & Quarterly performance
Looking at the table above, Watershed Balanced Portfolio was the best-performing portfolio for the second month in a row, returning 7.49% on an annual basis. That is more than double the 3.0% returned delivered by the Median Balanced Fund according to Chant West. The Watershed Group is a non-aligned licensee offering portfolio services to independently-minded practices. Its Balanced Portfolio is an actively managed, diversified portfolio of securities with a 40/60 split between growth and defensive assets.
Watershed also beat the Morningstar Aus Msec Balanced TR benchmark return of 3.85%. For the December Quarter the fund was up a respectable 6.84%, again above the benchmark index return of 6.67% but below the S&P/ASX 200 Index return of 13.3%. Asset allocation was a key driver, with the team regularly shifting between defensive and growth assets amid the most volatile year in history. The decision to maintain mid-cap Australian equities and a significant exposure to global shares paid off in spades.
Still sitting well above the benchmark was the Evergreen Premier Balanced Portfolio, which returned 4.93% for the year and 6.79% for the December quarter. A relative newcomer to the industry, and led by experienced asset consultant Angela Ashton, Evergreen produced another solid result.
Elston’s Balanced portfolio was the top-performing strategy for the December quarter, jumping 11.53% and outperforming the competition by 5 percentage points. The strategy experienced a difficult start to the year but has recovered strongly as conditions normalised and well-timed portfolio adjustments were made.
With 2020 behind us, the first year of the pandemic is history but far from over. The virus continues to spread, intermittent lockdowns have become the norm and Australia will soon roll up its sleeves after securing 53.8 million doses of the AstraZeneca vaccine and 10 million doses of the Pfizer vaccine. Those working in quarantine hotels, along with health professionals, cleaners and transport workers will be among the first to receive the vaccine. In similar fashion, countries around the world will finalise vaccine deals with pharma companies in the hope that it will slow the spread of the virus. This “hope” drove investor confidence higher and caused markets to rebound quickly from the lockdowns late last year. The market expectation is for things to return to some normality in 2021. Australian shares have almost recovered from their 2020 losses.
The key takeaway from this analysis is that MDAs need to be managed and assessed as regularly, if not more regularly, than any fund manager of direct stock. Many see the strategy as set-and-forget and see the benefit of outsourcing to an expert and moving on. But with an MDA considered a recommendation, advisers are bound to ensure the products they are recommending are at least performing as well as the alternatives and continue to remain appropriate.