Mercer looks for dynamic returns

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Adopting a flexible attitude to asset allocation has added about 0.7% to portfolio returns since the beginning of 2007, according to Mercer.

Tuesday, October 20th 2009, 7:27AM 1 Comment

by David Chaplin

Mercer says its dynamic asset allocation (DAA) process had correctly identified a number of pricing anomalies over the past two years, enabling clients to adopt medium-term portfolio ‘tilts' that strict adherence to long-term strategic asset allocation (SAA) policies would not allow.

Martin Lewington, head of Mercer NZ, said the DAA process, which seeks to fill the gap between short-term tactical asset allocation and SAA, was starting to attract attention among institutional clients in New Zealand.

Lewington said while Mercer Australia clients had been strong adopters of DAA the concept was just gaining acceptance in New Zealand.

"We've only got two clients in New Zealand [using DAA] but we've been overwhelmed by the interest," he said.

Lewington said Mercer had made a number of successful calls on asset classes since introducing DAA about three years ago, including a positive rating on credit as far back as January 2008 when that market was at its nadir.

"That call is gone now," he said.

Mercer's DAA committee is due to meet this week to update its view on asset classes with the focus likely to be on the credit and bond markets, which were rated as ‘fair value' at the group's July meeting.

Lewington said the Mercer's position on global shares, which has been classed as ‘undervalued' since October 2007, would also come under scrutiny.

"Relative to other growth opportunities overseas shares have looked better," he said. "But global equity markets have had a tremendous run recently."

Lewington said Mercer's DAA strategies were unlikely to be applied to the group's KiwiSaver default fund because of implementation costs.

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