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Issued by 1OAK Capital Limited, authorised and regulated by the Financial Conduct Authority.  1OAK Capital Ltd (1OAK) (Registered in England & Wales Number: 06890293; FCA registration number 501453) provides fund management services for its customers. 1OAK Capital Limited is authorised and regulated by the Financial Conduct Authority. Registered Office of 50 Sloane Avenue London SW3 3DD.

The asset allocation of the 1OAK multi-asset funds is guided by Blackrock, the largest fund manager in the world. For each fund, we use an asset allocation derived from a combination of Blackrock model portfolios.

The Blackrock portfolios have a real allocation history that starts at the beginning of 2017. This means that we can use the history of BlackRock’s asset allocation over time to show how the 1OAK funds’ investment process would have performed in the past. 

Now that the first of the 1OAK multi-asset funds have been launched, our primary focus will switch to the real, live performance that the 1OAK funds offer, but the simulated returns still serve a beneficial purpose. 

Accurate Simulations

Any simulation of returns will only ever be an approximation of the returns that a fund would have offered in the past. That said, we have attempted to make our simulation as realistic as possible. Listed below are the crucial steps in our testing procedure.   

  • The Blackrock asset allocation over time is a matter of record. They provide a detailed history of the iShares that they have held historically in their model portfolios.
  • 1OAK extracts the strategic asset allocation for the 1OAK funds from the Blackrock asset allocation systematically. This allows us to create a history of the exposures that each of the 1OAK funds would have to all the individual strategy components based on historic Blackrock asset allocation.
  • We simulate the performance of each of the 1OAK funds based on the investment process that we are currently employing. This is a combination of holding ETF’s for some strategy components and accessing exposure to others via a swap. 
  • For assets held via the swap the fund holds a portfolio of money market funds and enters into a swap where the fund receives receives the excess returns of the assets in the swap. The excess returns are the returns over and above the risk-free interest rate – which may be positive or negative. The combination of money market funds and the swap are equivalent to the returns from investing in the underlying assets.
  • The allocation to money market funds is based on a formulaic process which allows us to accurately estimate the return from these funds in the past.
  • Simulated portfolio returns include the effect of the FX hedging policy that we currently employ. The 1OAK funds are fully currency hedged on a ‘look through basis’. The funds implement an FX hedging strategy that seeks to minimise the effect of changes in FX rates on the fund returns. This is effective on two levels. The first is that the variance introduced into a global portfolio due to investing in assets denominated in different currencies is largely eliminated. Second, at the share class level, the difference in the performance of share classes denominated in different currencies is significantly reduced. The remaining performance difference between share classes across denominations will reflect differences in interest rates. 
  • We have used our best efforts to estimate the total costs and charges that apply to the fund and have included these in the simulated returns. 

What can the simulations show us?

It is essential to be mindful of the limitations of analysis of past performance, and it would be prudent to be particularly careful when using simulated past performance to evaluate a fund. However, some areas where simulated past performance can be beneficial in understanding an investment policy's underlying characteristics. 

Comparison with Blackrock

We can compare the simulated past performance of the 1OAK funds versus the performance of the Blackrock model portfolios. This allows us to evaluate the benefits or costs of the investment process that we use. In addition, we can simulate the performance of BlackRock allocations using the same FX forward hedging process to isolate the effects of 1OAK’s use of the swap and money market portfolios and any asset substitutions for exposures we hold directly. This data enhances our decision-making process and allows us to quantify the long-term implications of decisions made about how to access strategic exposures.

Comparison with the benchmark

We can compare the performance of the Blackrock model portfolios with the performance of the benchmark portfolios. The benchmarks are static blends of the MSCI World Equity and the Barclays Bloomberg World Bond indices. We calculate the performance of the benchmarks using the underlying indices and the performance of the ETFs that track these indices - and adjust so that the OCFs are the same as the 1OAK funds. This allows us to show what effect the Blackrock asset allocation has on performance. 

There are important differences in the BlackRock and Benchmark portfolios. These include the difference in the exact split of equities and bonds, active differences of asset allocation within the equity sleeve, and active differences of asset allocation within the non-equity sleeve.

Combined, our simulations of Benchmark, BlackRock historic allocation, and 1OAK fund returns allow us to quantify and grasp the impact of choices from broad asset class allocation, sub-asset class allocation, and finally, specific asset selection. This gives us an informed view of all the elements from which 1OAK fund performances are derived.

Comparisons with other funds

We are aware that the 1OAK multi-asset funds compete with other funds and that advisers and investors are interested to know how our returns compare with their peer groups. We can use the simulated past performance to illustrate the differences in return, volatility, drawdown, and performance through specific periods and the effects of FX hedging. 

Our objective is to offer investors solid, above-average performance in line with or better than their expectations. We want to describe what has worked and what has detracted from the performance of the fund. We need to be able to provide a coherent argument for the active positions and the investment strategy. The 1OAK funds will almost certainly not be the best or worst performing funds within their peer groups. They are not going to accumulate concentrated exposures within trending sectors or asset classes. The funds are meant to be well-diversified, durable, long-term portfolios suitable for the core of an investor’s holdings.