Adding a new dimension to fund research

The new group on the managed funds research block is quite keen not to be considered as being there at all.

This is an odd position to take, but according to 5Di chief executive, Lynne Curtis, the emphasis is on shifting away from research alone and towards the application of research data at the planning level.

A recent edition ofMoney Managementbroke the story that Curtis and her team left Partnership Planning and set up 5Di, to continue the process first started in 1993 when the group began operations under the RetireInvest banner.

So what is it about 5Di’s research process that Curtis says sets it apart from other groups providing research to the industry?

First of all she says that only 10 to 20 per cent of a portfolio’s value is in the products and their blending, yet 90 per cent of enquiries regarding a portfolio are directed towards this area.

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Conversely, the remaining 10 per cent of interest is focused on what makes up 80 per cent of the portfolio’s value, asset allocation.

“Most research is done at the 10 to 20 per cent level and very few focus on the other 80 per cent, which means they are focusing on the wrong thing,” she says.

It is at this point that Curtis says 5Di veers away from other methods of research and re-examines the idea of risk and loss of investments.

“If risk is defined as a negative return and then compared with the performance of certain asset classes over time, it becomes possible to allocate people’s investments over set time periods,” Curtis says.

“This results in a customised asset allocation per client and has added value at that level.”

The process does not forsake the qual/quant mix of research used to create manager blends. However, it is the addition of risk combined with investment time frames and financial goals, each defined by the client, which results in customised strategies, says Curtis.

“Each segment of a client’s investments is allocated to different strategies dependent on their needs in future years, and we aim for no chance of a negative return,” Curtis says.

So far, 5Di has been working closely with Challenger and Garrisons to supply this research to staff in both groups, but Curtis says the group will take the research further afield.

“We are dealing with other dealer groups, mainly those who are boutique because this is a different process and we have to convince the planners of its benefits,” she says.

“While it is easy to use, it can be hard to sell because it is moving the focus from managers to strategies and asset allocation.”

Curtis says the group is now dealing with the interest the process is generating, which will probably increase as 5Di builds relationships with players in the superannuation industry.

“We hope to evolve at a broad level, which includes corporate trustees, as well as working with fund managers in the areas of providing sector and style tilts in fund-of-funds products,” Curtis says.