Five top advantages of the discretionary mandate for investors

3 min. reading
BBVA in Switzerland, Economy, Equity, Fixed Income, Investment / 16 September, 2020

Alberto Villasán Investment and Markets Director

Professional management of your investments

Professional management of your investments

What is discretional mandate? Discretional mandate is an investment service characteristic of Private Banking, by which the clients delegate all or part of their assets to a team of professionals. This team then manages their assets within a certain framework of action and with a specific of risk and investment objective.

There is a very large universe of portfolios and investing options at the moment. But there are major economic imbalances as well, so it is vital to ensure that your investments are managed efficiently. Here are five top advantages of the discretionary mandate for investors.

What is a discretionary mandate?

We have previously seen that discretionary portfolio management is a typical investment service of private banking, whereby customers delegate all or some of their wealth to a team of professionals who manage it in accordance with a specific framework of action and a specific risk and management objective.

We have also seen how combining two portfolios could be an option for obtaining returns above inflation by controlling asset volatility:

• Fixed-Income Asset Portfolio

The investment philosophy of this portfolio is based on accumulating and maximising bond and carry coupons, maintaining a defensive position when fixed-income assets are overvalued and buying decisively when market opportunities arise.

• Multi-Asset or Equity Portfolio

This portfolio investment philosophy is based on maintaining a defensive management position focused on tactical management when the market is not offering any opportunities (to avoid bubbles, protect capital and have the capacity to take advantage of adverse market environments to buy at attractive prices).

Five top advantages of the discretionary mandate for investors

1. Profitability and flexibility

The Fixed-Income Asset Portfolio has a positive coupon or carry so the mere passage of time implies a positive return. It also has the capacity, as occurred in March this year, to buy bonds with very high coupons in case of a crisis or market slump. This portfolio therefore combines a positive expected return with total flexibility to take advantage of any market opportunities that arise.

2. Dynamism and wealth protection

The Mixed Asset or Equity Portfolio has the capacity to buy on the stock market in times of panic or falling markets and sell in times of euphoria or a rebound. It can also protect investors’ wealth during adverse market situations, which is essential in this environment.

3. Diversification

One of the most important aspects to remember in the current market environment is the need to diversify your investments. In view of the current level of debt of both companies and countries, we expect to see a significant upturn in the default rate, so it is crucial to build a diversified portfolio. Many investors underestimate this factor, thinking that companies and countries will naturally pay their debt in a timely manner, but in times of crisis, economic recessions or high levels of debt like the current one this cannot be taken for granted.

4. Speed of decision-making

This is one of the key advantages of discretionary management portfolios in the current market conditions where we are seeing very fast and very sharp movements that demand agile and dynamic decision-making, more or less in real time. Proof of this is our experience during March and April of this year, when equity and fixed-income prices fell by more than 30% and 20%, respectively.

5. Strength in the combination of both strategies

Both strategies have medium-term value and complement each other. Sometimes one of them works well and the other performs worse, and vice versa. It is therefore essential for investors to combine both styles when building their portfolio.

The attention your investment portfolio needs

BBVA in Switzerland is part of BBVA Group and manages your wealth so that you can spend your time on what really matters. Our philosophy is based on capital protection with a focus on the long term while being alert to any short-term opportunities that arise, according to the customer’s risk profile.

Do you want to discover more about our discretionary mandate solutions? Check out the FAQ section or contact your Relationship Manager.

 

Do you have any questions about this article? Write to us.

For more information, please contact your Investment Advisor.

 

This article is for informational purposes only and should not be considered as an offer or recommendation; nor should the information provided be considered as advice of any kind.

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