For some people it’s a question of not having enough time, for others it’s a question of lacking the right expertise, for many it’s a question of both. Keeping an eye on an investment portfolio, whether it is made up of simply cash and shares or other, more complex products, is often a difficult task that requires both knowledge and time.
Of all the investment products out there, stock markets are often seen as being the most volatile, driven up and down by everything from globally significant political events that can affect an entire economy to a piece of surprising news published by a single company. But the reality is that any investment can rise or fall in value and keeping track of those changes is not a task to be undertaken lightly. Among other things, one needs to be able to take a considered view on whether any change in valuation is simply part of the natural ebb and flow of a market and short-term in nature, or something far more serious which requires a reaction.
For all of these reasons, the role of banks and other financial firms in providing portfolio management services has been steadily increasing in the Gulf region, with more and more people recognising the need for some professional assistance in managing their investments.
The firms providing such services need to balance their knowledge of the market with the needs of the client. No two clients are exactly the same and judging the right approach to any investment will depend to a large extent on the needs of the customer, including the stage in life they are at, the appetite for risk they have and the amount of money they have available to make investments.
“A disciplined professional investment manager is not unduly influenced by shorter term market fluctuations, which tend to be driven by very specific events and news flow,” says Mark Friedenthal, Chief Investment Officer at ADCB Asset Management.
“The objective of a portfolio manager is to see past the less manageable daily noise and focus instead on longer term macro trends that are more observable and measurable. The challenge is then to carefully consider the life-stage circumstances of the client and, based on this, create the optimal blend of different investment opportunities to match their needs and objectives.”
If the right balance can be struck between all these issues then the client should benefit with greater returns from their investment portfolio. It is also worth noting that the advantage of using a portfolio manager goes beyond the knowledge and experience of one professional and their ability to make sound investment decisions. In most financial services companies, these individuals will be able to draw on the assistance of a network of analysts, advisors, risk managers and others to help them judge the market conditions and work out the best investment strategy.
The extent of these support services will obviously vary between service providers. As they develop their offerings, some banks have started to develop different products which make use of varying amounts of their in-house skills base.
Some individuals may only want to allocate a small proportion of their wealth to a discretionary portfolio manager, for example. In such circumstances, they could use one of the standardised, off-the-shelf model portfolio solutions that are offered by many providers. ADCB, for instance, has five different portfolios that are tailored to meet differing risk appetites of clients, from a very conservative offering that is based on fixed income products such as government bonds, all the way up to a far more aggressive portfolio that is focused on equities, with all the additional potential volatility that implies.
For clients with more money and more specific needs, more heavily customised solutions are likely to be appropriate, with investment portfolios that can be adjusted to favour certain asset classes for example, or particular countries, regions or sectors of the economy.
Despite the profusion of product offerings that are now available, there will always be some people who prefer to go it alone and at least some of these individuals will succeed in making a healthy return on their capital. But there is also a middle way emerging, somewhere between the idea of an individual investor looking after their own money and professional investors employed to do the job for them, and it is one that has come about due to advances in technology. So-called ‘robo advisers’ are online wealth management tools that use complex algorithms to provide portfolio management advice without any direct human input.
However, there are difficulties and risks in either of these latter approaches. Making consistent gains over the long-term is likely to be harder to achieve for the average individual, whether they are making investment decisions completely alone or with the assistance of some clever computer programs.
“Clients need to consider professional portfolio management services in the same way that they would consider other professional services, such as their plumber for example,” says Friedenthal. “Faced with a broken water pipe the average person could probably make their own rudimentary repair, but without the plumbers specialist knowledge of materials and the water pressure stresses on the pipe it is questionable how long this repair will last, Similarly, in the case of investment management, it is possible for clients to manage their own portfolios and these may even deliver very attractive short term gains, but without due consideration of all variables and factors across multiple market cycles it is unlikely that their success will be maintained.”
This is a sponsored article written for Abu Dhabi Commercial Bank
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