It’s a zoo out there, but a multi-asset approach can help investors cope

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Last weekend I decided to spend some quality time with my family at the zoo. My two-year-old was fascinated and über-excited by the multitude of species, colours and sizes of animals we saw. We walked all around the zoo. It was a great experience.

I have to admit that at the end of the day, it was quite difficult to explain to my boy that the 1.5 tonne hippopotamus would not fit in the trunk of our car and could not come home with us.

I also told him that to have such a special wildlife experience, it was better to leave the animals in the hands of the professionals who are dedicated to taking care of the needs of the zoo’s assets.

The financial markets’ jungle: leave it to the professionals

As an investor, you might also want to take home the ‘gems’ presented you come across in the market. You can of course rely on well-known advisors or asset management tools to help you select the assets for your portfolio, but these have their limits. And of course, life is too short to not benefit from the latest financial innovations which aim at reducing the time you spend identifying the best offers available in the market.

So how do you create that zoo experience where you can enjoy the broader wildlife without becoming overburdened or overwhelmed?

A simple equity-and-bond ‘smart-beta’ portfolio can do the job for you. Let’s imagine a multi-asset investment strategy combining flexible allocation and the premiums from so-called factor-related performance drivers.

Diversifying the risk associated with a single investment factor, e.g. value, is vital when investing in this ever-changing and volatile world. Avoiding the trap of putting all your eggs in one basket is Paramount.

Creating a ‘financial menagerie’

The process to select equities and bonds strategies goes through four steps:

  1. A factor definition (academic or proprietary)
  2. An understanding on how multiple factors are combined (risk-based, equally weighted, score-based)
  3. The degree of diversification the multi-factors mix is able to provide
  4. An evaluation of the straightforwardness of the strategy’s implementation versus a black-box optimisation.

Our expertise in equity and bond ‘smart-beta’ products and all-in-one solutions enables us to time market beta and harvest the return premia associated with specific in-house factor strategies.

The flexibility of the approach means market exposures are adjusted in line with changing economic cycles, while rigorous risk control aims to smooth portfolio drawdowns during market turbulence.

We believe such a multi-asset smart-beta strategy is well suited to the needs of investors seeking outperformance potential for their medium-term investments and who are looking into new sources of performance combined with a traditional tactical asset allocation (TAA) approach.

So, why try to replicate a zoo experience in your living room yourself when there is a professionally managed cutting-edge alternative that is easily accessible and equally worthwhile?

Written on 26 January 2017 in Paris

Andrea Mossetto

Senior Investment Specialist, THEAM

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