The ARC MPS Indices are different to the PCI. How do you decide which one to use?
The ARC MPS Indices are designed to shine a light on the performance of managed platform solutions, such as MPS models and multi-asset funds. These solutions are different to private client portfolios (covered by the PCI) and warrant a different approach to classification. If you are evaluating a model or fund solution on platform then the ARC MPS series is the one to use.
There are two different use cases for the two indices (find out more about the differences here). Fundamentally, the PCI are backward looking and compare the outcomes delivered for a given level of risk, whereas the MPS Indices are forward looking based on the construction of the model.
The MPS series differs from PCI in that it uses equity allocation as the basis for classification rather than realised volatility. For constructing the indices we use three year rolling average equity allocation (or whatever is available if less than 3 years). See the methodology document for more detail [link]. For this reason there is more asset allocation information in the MPS reports than there is in the PCI reports.
How do to decide which MPS index to use? You and your DFM can choose the most appropriate index, but we would expect the equity allocation to be within or close to the range for the given index. There will always be borderline cases, where the target allocation for a given model sits on the boundary between two indices. In these cases you should use your judgement to select the index that fits best with the aims of the model. For example, the target volatility of the model might be higher or lower than the equity allocation suggests, as the other assets that they use in the model could be very low risk, or quite equity-like in their volatility profile. The performance reports include information about risk levels and use some risk-adjusted performance measures will can help understand the volatility of a model in more detail.