The equivalent rplan Active and Hybrid pre-selected portfolios are managed against the same long-term, strategic asset allocations and will adopt very similar tactical asset allocation positioning. The main difference between the portfolios lies in the selection of the underlying investments.

The Active portfolios invest in ‘active’ funds - where the fund managers make active investment decisions with the aim of achieving a particular objective and/or outperforming a particular performance target (index, cash, inflation etc.) over the medium to longer-term. They do so on the basis of research and both quantitative and qualitative analysis and fund managers often meet with company executives before investing. These funds have the potential to outperform their benchmarks but can also go through periods of underperformance, particularly if their investment strategy or style (e.g. value, growth, momentum, mid/small cap bias etc.) is out of favour with investors.

The Hybrid portfolios invest predominantly in ‘passive’ funds – which aim to track the performance and risk characteristics of an index over the medium to longer-term (also known as ‘tracker’ or ‘index’ funds). These funds tend to cost much less than ‘active’ funds because they do not require the same level of research, decision making and trading. If the risk controls are good and the tracking error (performance difference versus the index) is managed well, these funds can go through periods of outperforming their equivalent actively managed funds, particularly if the largest individual index constituents are outperforming. Where ‘passive’ funds are not available for a particular asset allocation (for instance, if there is no appropriate passive investment option available in that sector), ‘active’ funds are used instead.

Portfolio positioning can differ slightly between the Active and Hybrid portfolios due to the nature of the underlying investments available and how asset allocation views can be interpreted within portfolios. As an example, a negative view on an asset class can be expressed by an underweight asset allocation position but, within the Active portfolios, defensive/lower beta/lower volatility funds could be selected to represent or accentuate the same view.

This information has been provided by Rayner Spencer Mills Research, who provide the asset allocation and fund selection for the rplan pre-selected portfolios.