The following article was penned by Grace Debono, Head of Marketing and Human Resources (HR) at MZ Investment Services Limited.

In times of market uncertainty, why is discretionary investment management important as part of an investor’s financial planning strategy?

When understanding discretionary investment management, it is important that two broad types of investment management styles are considered. Non-discretionary investment management is characterised by conducting all the research and recommendations of the investment process, which gives value to investors who do not have the time to research and follow the markets.  However, the clients still retain the right to make the end investment decision. Another style quite popular in today’s ever dynamic markets is discretionary investment management. Such discretionary investment management strategies may add benefits to an investor’s financial plan. Clients do not need to spend time worrying about their investment performance; they can simply just invest their capital with a professional, who will monitor their investments on their behalf.

Investment managers are professionals who understand the financial markets and will try to earn excess returns for clients above their benchmark, and at the same time balance risk versus opportunity.  In theory, it should lead to better performance than investing personally.  Clients can pool their capital together and access economies of scale in the form of lower trading fees.

Financial institutions today offer a wide range of discretionary portfolio services. Having the opportunity to interview the Portfolio Managers and research team at MZ Investment Services, I continued to confirm the value of considering diversification, expertise, and accessibility when financially planning.

David Mallia, Portfolio Manager at MZ Investments, shared his view: “When comparing the benefits of a discretionary portfolio over an advisory portfolio, several aspects must be taken into consideration. Primarily the level of expertise and market engagement of the specific client is crucial.”

“If the client follows financial markets closely, an advisory portfolio would be more in tune with his or her long-term investment targets. In most instances, clients do not following financial markets closely and rely on a financial adviser’s opinion and guidance. If a client meeting or exchange of opinion takes place on a quarterly basis, you can still be missing potential buying and selling opportunities that arise because of market developments in the interim periods,” he said.

“A discretionary portfolio with a clear mandate on risk parameters enables an investment manager to trigger portfolio changes more efficiently. This does not mean that it will eliminate potential losses, but it would certainly limit the downside. A perfect example is the recent record low interest rate scenario we have been through which gave rise to substantial gains on long dated sovereign debt. This was a classic long term bull market scenario and an opportunity for realising a large part of these gains within a discretionary portfolio,” Mr Mallia added.

“An investor who got similar advice, but did not act, lost most of those market gains and is looking at portfolio losses. During bear market situations a discretionary portfolio manager can use cash as a tool to stagger the gradual investment process in line with market behaviour,” he continued.

Jesmar Halliday, Portfolio Manager at MZ Investments, highlighted the importance of keeping customers at the foresight and the importance of having a dynamic and strong investment process in all market scenarios by adding: “Our discretionary service at MZ Investments provides for a team that is laser-focused on adding value to our clients.”

“Our investment process, deep industry knowledge and timely action seek to deliver optimised allocations given various market conditions. This year has been an exemplary year for the need of having a discretionary service as market conditions changed dramatically over the past three quarters,” he added.

“Investment strategies needed to be dynamic to reflect an ever-changing economic backdrop. At MZ Investments, our discretionary management team encapsulates the embodiment of a decision-making process which is based on rational investing whilst ensuring that portfolios are constantly monitored for any emerging risks but also opportunities,” Mr Halliday said.

MZ Investments Head of the Research team Josie Zahra stressed the importance of sticking to investment goals and being patient when investing, saying: “During volatile markets the key strategy we use is to try and ignore the noise and panic in the markets and try and understand how our underlying assets are being affected, and what opportunities are arising from current market conditions.”

“During market volatility, usually our long-term thesis or ideas are unchanged, and it could be an opportunity to add to our current positions at lower prices or even consider new positions. Volatile markets tend to create opportunities that investors should crave, so despite the pain that volatility can create in terms of asset prices and valuations, patience is usually rewarded in volatile markets,” he added.

Throughout my experience in financial services, investors may be missing out on opportunities when reluctant to turn to an investment expert. Before taking any investment decisions, it is important that the investor or client understands his or her goals, and once the right strategy is identified, it is understood that financial plans are not static objects, and financial objectives within a life cycle should be reviewed over time, as circumstances change. One should always consider the benefits reaped when accessing investment expertise when managing our wealth.

Throughout the history of investments, markets have gone through many investment cycles and volatile periods with risk versus opportunity making headlines. Benjamin Graham, an influential investor whose research in securities laid the groundwork for in-depth fundamental valuation used in investment analysis today, believed that successful investing is about managing risk and not avoiding it.