Elston supports UK financial advisers CIP/CRP/MPS
  • WHO WE ARE
    • About
    • Our Journey
  • WHAT WE DO
    • Elston MPS >
      • Our Portfolios
      • Adaptive Portfolios
      • Retirement Portfolios
      • Multi-Asset Income
      • Money Market Portfolio
    • Custom MPS >
      • Custom Portfolios
    • CGT Solutions >
      • Our CGT Solutions
      • GIA Portfolios
      • Onshore Bonds
      • Direct Gilts
    • Adviser Support >
      • Our Adviser Support
      • CIRP
      • Investment Committee Support
      • Regulatory Support
      • Analytics, Factsheets & Reporting
      • CPD
    • Fund Solutions >
      • Our Funds
      • Custom Funds
    • Index Solutions >
      • Our Indices
      • Elston Multi-Asset Indices
      • Sector Equal Weight
      • UK Equity Income
      • Liquid Real Assets
      • Gold and Precious Metals
      • Custom Indices
  • WHO WE HELP
    • Financial Advisers
    • Discretionary Managers
  • Insights
  • Contact

Asset Allocation Research for UK Advisers

Designing Robust Portfolios

31/1/2020

 
  • Create a structured, systematic and evidenced-based investment process
  • Don’t reinvent each wheel, but blend institutional-quality expertise
  • Remain agile and adaptive as implementation options evolve

What actually delivers performance?
A portfolio’s asset allocation is the key determinant of portfolio outcomes and the main driver of portfolio risk and return. Ensuring the asset allocation is aligned to an appropriate objective is therefore key. Getting and keeping the asset allocation on track for the given objectives and constraints is how portfolio managers can add most value for their clients.

What differentiates portfolio managers?
There are no “secrets” to asset allocation in portfolio management. It is perhaps one of the most well-studied and researched fields of finance.

Perhaps unusually for a competitive service industry, core know-how is not a barrier to entry. Anyone completing their Chartered Financial Analyst exam will have a comprehensive grounding in the principles of portfolio management.

There are, in my view, three differentiating factors for discretionary fund managers.
  1. Quality of Process: how that know-how is deployed and implemented: the quality of design, research, implementation and risk control
  2. Quality of People: how that know-how is explained and communicated to clients: the quality of brand, personalities and client service
  3. Quality of Proposition: how that know-how adapts to changing research, tools and technologies

Quality of Process
To create a quality investment process, managers need a robust set of capital market assumptions for each asset class and the relationship between asset classes. Ideally these should be term-dependent, to align to an appropriate term-dependent investment objective.

To create an appropriate asset allocation, managers need to consider what their objective is: is it risk-adjusted returns in which an asset-optimised approach makes sense (the bulk of retail multi-asset strategies take this approach); is it to match future liabilities, in which case a liability-relative approach makes sense (more akin to how a defined benefit pension scheme is managed); is to target a volatility level or band; or is to target a level of income distribution.

Managers also need to design a set of constraints – risk budget, fee budget, minimum and maximum position sizes, portfolio turnover constraints and counterparty considerations.

Managers need to make implementation decisions as regards how they access particular asset classes or exposures – with direct securities, higher cost active/non-index funds, or lower cost passive/index funds and ETFs. Fund level due diligence as regards underlying holdings, concentrations, round-trip dealing costs and internal and external fund liquidity profiles are key in this respect.

Quality of People
Whilst we believe strongly in the deployment of technology to assist managers in designing, building and managing portfolios, that doesn’t mean that people aren’t core to a business. Investment managers must invest in their people to build on both quantitative skills that are necessary to finance as well as communication skills that are necessary to communicate with advisers and their clients. It’s people that make up a brand, and clients measure performance as much on client service as on returns.

Quality of Proposition
There are few firms, if any, that can build an end-to-end proposition entirely in-house.  Part of a manager’s skillset is to understand where their expertise lies. We believe that there is little value in reinventing the various wheels of a proposition. But there is tremendous value in bringing together best in class components that create a proposition in a way that is robust, repeatable and proprietary.

It’s the quality of choices around proposition that differentiate portfolio managers, and in this respect it is important to remain agile and adaptive, to a rapidly changing landscape in asset management and technology.

Bringing it all together
The objective for investment managers is no longer about “pushing” one product or another. It should be about providing solutions that help address a specific need.
​
Managers should ask themselves: what problem is the investment strategy trying to solve for their client? How can they do that in a way that is robust, repeatable and evidence-based, so that everyone can sleep well at night?

The secret is, there are no secrets. Good portfolio management is about focusing on what matters, using informed common sense.

Comments are closed.

    ELSTON RESEARCH

    insights inform solutions

    Get our weekly newsletter

    Categories

    All
    All Weather Portfolio
    Alternative Assets
    Alternative Strategies
    Bonds
    Business Practice
    Capital Market Assumptions
    CPD
    Direct Gilts
    Equities
    Equity Income
    Equity Sectors
    ESG
    ETFs
    Evidence Based Investing
    Factor Investing
    Geopolitics
    Gold & Precious Metals
    Guide To Investing
    Index Investing
    Inflation
    Investment Trusts
    Macro
    MULTI ASSET
    Multi Asset Income
    Net Zero
    Outlook
    Permanent Portfolio
    Podcast
    Portfolio Construction
    Private Markets
    Real Assets
    Retirement Investing
    Risk Parity
    Thematic Investing
    Value Factor
    Video

    Archives

    May 2025
    April 2025
    March 2025
    February 2025
    January 2025
    December 2024
    November 2024
    October 2024
    September 2024
    August 2024
    July 2024
    June 2024
    May 2024
    April 2024
    March 2024
    February 2024
    January 2024
    December 2023
    November 2023
    October 2023
    September 2023
    August 2023
    July 2023
    June 2023
    May 2023
    April 2023
    March 2023
    February 2023
    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    September 2019
    June 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    July 2017
    May 2017
    March 2017
    February 2017
    January 2017
    November 2016
    October 2016
    September 2016
    July 2016
    June 2016
    May 2016
    February 2016
    January 2016
    August 2015
    June 2015
    January 2014
    June 2012

    RSS Feed

Company
Home
About
​Our Journey
​​​Contact
Terms of Use
​Our Solutions
​​Insights
​Our Portfolios
Custom Portfolios
​Retirement Portfolios
Our CGT Solutions
Our Funds
Custom Funds
Our Indices
Custom Indices
​Adviser Support
CIRP
Investment Committee Support
Regulatory Support
Analytics, Factsheets & Reporting
CPD


By client type:
For Advisers
For Discretionary Managers


© COPYRIGHT 2012-25. ALL RIGHTS RESERVED.
 Elston Consulting Limited (Company Registration Number 07125478) is registered in
England & Wales, Registered address:  1 King William Street, London EC4N 7AF
  • WHO WE ARE
    • About
    • Our Journey
  • WHAT WE DO
    • Elston MPS >
      • Our Portfolios
      • Adaptive Portfolios
      • Retirement Portfolios
      • Multi-Asset Income
      • Money Market Portfolio
    • Custom MPS >
      • Custom Portfolios
    • CGT Solutions >
      • Our CGT Solutions
      • GIA Portfolios
      • Onshore Bonds
      • Direct Gilts
    • Adviser Support >
      • Our Adviser Support
      • CIRP
      • Investment Committee Support
      • Regulatory Support
      • Analytics, Factsheets & Reporting
      • CPD
    • Fund Solutions >
      • Our Funds
      • Custom Funds
    • Index Solutions >
      • Our Indices
      • Elston Multi-Asset Indices
      • Sector Equal Weight
      • UK Equity Income
      • Liquid Real Assets
      • Gold and Precious Metals
      • Custom Indices
  • WHO WE HELP
    • Financial Advisers
    • Discretionary Managers
  • Insights
  • Contact