Asset Allocation Forum 2017

Asset Allocation Forum 2017

Does the tortoise win all the time?

In the familiar ‘tortoise versus hare’ race, ‘slow and steady’ has often been held up as an important virtue of long term investing. Despite the vagaries of ad hoc opportunities, having the patience to only focus on the long horizon is expected to be the winner. While ideal, such a scenario may be too simplistic for today’s investment environment.

Global markets continue to experience distortions as a result of recent monetary policies of the major central banks. Geopolitical risk is increasing important though it remains difficult to quantify and integrate. Despite the uncertainties with the Trump administration and unpredictable nature of upcoming European elections, the ‘old normal’ in financial markets seems likely to supercede ‘lower for longer’. Are we back to a risk-on world, or is it ‘simply ‘lower for-ever’?

Best practice asset allocation models

While there is consensus that the static 70/30 or 60/40 balanced portfolio has significant flaws, the jury is out in terms of suitable alternative models. The changing demographics of the population further complicates this process for pension funds.

Diversification using risk factors has gained increasing acceptance as additional levers for portfolio construction. This feeds into the ‘active versus passive’ discussion, where the fees and value-for-money proposition remain contentious.

Beyond the public markets, the role of illiquids in the portfolio also deserve some attention, despite the accompanying risks and costs.

Robust portfolio and resilient team

As funds look to build investment teams and insource specific asset classes, trade-offs will inevitably arise between the overall investment strategy and that of the specific asset class. Should we build the ‘best portfolio’ or the ‘best equities (or fixed income) portfolio? The answer is obvious but implementation is less intuitive. Healthy tensions are deemed constructive but investment team dynamics and resilience are critical.

At this 6th annual [i3] Asset Allocation Forum, we endeavour to address the plethora of investment strategy issues facing CIOs, strategists and senior fund executives.