ASSET ALLOCATION

We recognise that every client has a unique set of circumstances and aspirations. The science of portfolio modelling can suggest combinations of cash, bonds, equities, alternative investments and other financial instruments that will in theory meet a client’s objectives. However, the art of portfolio design is to help a client to select a portfolio structure that meets their specific quantitative and qualitative criteria.

Strategic asset allocation

Once an investment objective is determined, it needs to be translated into a strategic asset allocation across the major asset classes. The strategic asset allocation should reflect the risk budget that has been agreed.

Core versus satellite

When implementing a strategic asset allocation, the decision needs to be made as to whether to select generalist managers, specialists or a combination of these two approaches. The choice depends on client preference, portfolio size and preferred investment styles.

Mandate design

Wording used in a mandate is critical in ensuring that potential managers understand the aims and aspirations for a portfolio. Terms such as growth, balanced, conservative and cautious are often used. Likewise, time horizons are often described as medium or long term. But what meaning do they convey?

Client requirements change

The optimal strategic asset allocation for a client evolves as their circumstances and aspirations alter over time. Rather than being a one-off exercise, asset allocation strategy should be reviewed on a rolling basis, with action being taken at the appropriate interval.