As a trusted partner to advisers, much of our time as abrdn MPS investment managers is spent on portfolio construction. This is underpinned by a blend of top-down asset allocation decisions and meticulous bottom-up fund selection, the latter of which includes a flexible ‘whole of market’ approach.

We operate a rigorous, tried-and-tested fund selection process that not only makes full use of analytical tools such as Morningstar Direct and Style Analytics, but also leverages the expertise of abrdn’s Fund Selection Team.

Combining the above with a robust strategic and tactical asset allocation process allows us to construct and manage portfolios dedicated to achieving clients’ financial goals, delivering a comprehensive investment solution they can trust.

Striking the right balance for consistent risk adjusted returns

A core part of our toolkit is that we’re not tied to either active or passive funds. We look to assess each sub asset class individually before choosing active, passive or a combination of the two.

What’s more important is striking the right balance between passive and active funds. In certain asset classes, such as government bonds, our analysis shows that passive investments can be the more compelling option, given the typical performance of active funds coupled with cost considerations.

It’s also important to highlight that our selection process is often more nuanced than just comparing active to passive. For example, we currently allocate to Vanguard US Equity Index Fund, which allows us to take an active view with a passive instrument. The fund tracks the S&P Total Market Index, an index of over 4,000 stocks, which gives us a tilt to small mid cap stocks relative to the S&P 500 benchmark.

A diversified approach that allows for fine tuning

It has to be said that active management has the potential to generate enhanced risk adjusted returns for clients over their passive counterparts and so we lean towards active in asset classes we feel can add most value.

However, we rarely allocate to one single active fund as the sole exposure to a sub asset class. Instead, we look to build blends of funds, combining two or more to achieve diversified, intentional exposure. These blends are carefully calibrated, with the number of funds in a blend typically correlating to the size of the allocation.

For example, when constructing a UK Equity blend, we may integrate a mix of large cap value, large cap core, large cap growth, and small mid cap funds. This diversified approach enables us to fine tune factor exposure according to market conditions and strategic views, such as a favourable outlook on small mid caps which we recently described here. This level of fine tuning can be easily incorporated into the portfolio through fund selection.

Fund selection and our evaluation framework

For the abrdn MPS, our fund selection process is deeply analytical beginning with quantitative screens to narrow down potential candidates, followed by thorough qualitative analysis and a series of meetings with portfolio managers.

To ensure we have a consistent and holistic assessment of each fund, we use an evaluation framework, detailed below, which highlights the ‘five Ps’ - Philosophy, Process, People, Performance, and Price.

Evaluation framework

One example was the addition of Man GLG Undervalued Assets Fund into our MPS earlier this year. We felt it ticked all the above boxes and it soon became an integral part of our UK Equity blend. Since adding the fund into the MPS, it won the Investment Week 2024 Fund Manager of the Year Award for the UK All Companies sector, something we feel is a testament to our fund selection process.

Taking advantage of the opportunities

While our fund selection process is centred around analytical tools and leveraging the experience of abrdn’s Fund Selection Team, we also make use of our extensive network and regularly uncover unique opportunities that might elude conventional screening processes.

The recent inclusion of T. Rowe Price’s US Structured Research Equity Fund into our US Equity blend is one such example. This strategy has been running in the US for over 25 years, however as they only launched the UCITS fund less than a year ago, it fell outside of traditional screening approaches that generally require a longer track record. Our close relationship with T. Rowe Price meant that we learned of the strategy and after a series of meetings, we added the fund into the MPS.

The key to sustained performance and a proactive approach

Of course, the initial selection of a fund only marks the beginning of our engagement with it. Ongoing monitoring is critical to make sure the characteristics that initially attracted us to a fund remain consistent over time and that it performs as we expect in different market environments.

We have a proactive approach to monitoring the funds held across MPS propositions. For example, we hold weekly performance reviews and have regular, in-depth meetings with portfolio managers. The 120 meetings we had with fund managers in 2023 (the majority of which were review meetings for funds already held) emphasises the importance we place on this part of the process.

abrdn MPS will continue to be a trusted partner to advisers in the same way that we’ll continue to dedicate our time to construct and manage portfolios, helping to deliver consistent performance and value for money for clients.

abrdn Portfolio Solutions Limited offers a range of portfolio strategies for adviser firms, with a choice of management styles and risk levels to meet clients’ investment needs. To find out more, go here.

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The views expressed in this blog should not be regarded as financial advice.