MLC Investment Management's decision to split the Australian equity assets of its sector fund from its diversified fund range will allow the manager to make better use of its strategic overlay.
Under the strategic overlay process, analysts develop likely future market scenarios based on investor behaviour and macro-economic indicators.
The process was introduced at the end of 2009 in the diversified fund range to better anticipate the risk of falling returns, as Markowitz's portfolio theory started to show cracks during the global financial crisis.
"We need to be able to accommodate where there is a strategic overlay how we actually implement that without changing the whole nature of the investments that sit in the sector portfolio," MLC Investment Management Australian equities portfolio manager Peter Sumner said.
"The strategic overlay is obviously a new enhancement in the overall strategy within the diversified funds; it hasn't been a feature for several years, so this [split] also allows us to express that [process]."
The strategic overlay looks at the relative risk/return ratios between the different asset classes of the diversified fund range and a change in market conditions might lead to an adjustment of the weightings of these asset classes.
However, previously it was tricky to make adjustments as it would also affect the sector fund, whose weightings should not be judged against the other holdings of the diversified fund range.
"The relative risk/return out of Aussie shares might be better than global shares and then we might want to dial that risk up. So we've got those levers to push now," Sumner said.
The split has already led to differences in weightings across the two strategies, which was further amplified by the termination of mandates with Lazard Asset Management and Contango Asset Management.
Where Concord Capital previously held 5 per cent across the total portfolio, it now holds 4 per cent in the diversified fund range, or the Horizon funds, while it has a 10 per cent allocation in the sector fund, or the MLC Australian Share Fund.
Balanced Equity Management previously held 10 per cent of the total assets, but now holds 18.5 per cent in the Horizon funds and 17.5 per cent in the MLC Australian Share Fund.
JCP Investment Partners also went from 10 per cent overall to 18.5 per cent in the Horizon funds and 15 per cent in the MLC Australian Share Fund.
Dimensional stayed at 10 per cent in each strategy.
Maple-Brown Abbott's weighting increased slightly from 15 per cent overall to 17.5 per cent in both strategies.
Northcape went from 10 per cent overall to 9 per cent in the Horizon funds and 12.5 per cent in the MLC Australian Share Fund.
Northward went from a 5 per cent overall weighting to 12.5 per cent in the Horizon funds and 10 per cent in the MLC Australian Share Fund.
Finally, Wallara stayed at 10 per cent in the diversified fund range, but its weighting was reduced slightly in the MLC Australian Share Fund to 7.5 per cent.
MLC Investment Management manages in total $12 billion in Australian equities in the two strategies, but a portion of this money is not allocated to the managers and, instead, is applied under an emulator model that mimics the allocations of the underlying managers.
The firm does not disclose how much of the funds are held in this emulator model.
According to data from Morningstar, the MLC Horizon fund range had $24.1 billion in total assets, of which $15.5 billion were superannuation assets.
