Robust Portfolios

Adding Alternatives to an Investment Portfolio – Part 3; Investing Like an Endowment Fund

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Part 3 of a series of articles about adding / increasing Alternatives in a Portfolio.

The attached article is a recently published article via the CAIA: Investing Like the Harvard and Yale Endowment Funds.

My previous Posts have outlined the potential benefits of adding Alternatives to a portfolio. This article provides some evidence of the benefits of adding alternatives to a portfolio.

The Endowment Fund success has come from having more than just absolute return funds i.e. hedge fund alternative strategies, but also exposure to real assets have played a part, including a Private Equity exposure. Many Australian Super Funds have benefited from their exposure to unlisted infrastructure and Property.

New Zealand Portfolios generally lack exposure to real assets, private equity, absolute return funds, and alternative strategies.

The Top performing Endowment Funds have benefited from “true diversification”, they have benefited from their allocation to alternative asset classes.

“Their long term investment strategy has prevailed to the extent that long term total and risk adjusted returns remain superior to those of traditional portfolios.”

 

CAIA Investing like an endowment

 

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Adding Alternatives to an Investment Portfolio – Part 2

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Following on from an earlier post on adding alternatives to a portfolio the attached document is a short and precise commentary on the case for adding alternatives to a traditional portfolio.  See link below.

The Title: “It’s an evolution, not a revolution” sums it up very well.

The article notes that the evolution in portfolio construction has moved away from the old way of style boxes, market expectations, and benchmarks, to a greater focus on the investors (clients) liabilities, risk tolerances, and an investors actual objectives – most likely funding requirements in retirement.

The article references the behavioural finance that people “feel the pain of losses far more they do the benefits of gains”. As they say, Investors want to minimise loses, and focus on outcomes rather than returns.

The article is then nicely concluded referencing one of Warren Buffet’s key influences, Benjamin Graham, quote “the essence of investment management is the management of risks, not the management of returns.”  This is so true.

I agree with their concluding remark, “better to lose less and compound more than to reach for excess returns and fail to reach your objectives”. Alternative strategies can play an important role in compounding returns / wealth over time.

P.S. This article is an editorial that appeared in the Chief Investment Officer magazine.

Evolution not revolution

 

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Adding Alternatives to an investment portfolio

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I first read this article (PDF below) in 2015 when it was published.

I particularly liked their comment as viewing “alternative strategies as part of the ongoing evolution in portfolio construction”.

Hopefully many portfolios have evolved to include an allocation to alternatives, whether non-traditional assets or alternative strategies as characterised in the article.

This article also touches on the theme from my last post about true portfolio diversification “an attempt to push beyond simple diversification in which investors’ funds are divided among multiple assets or asset classes.” i.e. the introduction of the likes Listed Property and Infrastructure into a multi asset class portfolio does not bring “true portfolio diversification” and will more than likely fall short of expectations with respects to the portfolio diversification benefits.

The article’s focus on downside protection is right, and lowering portfolio volatility overall. A Portfolio with lower volatility and a similar return compared to a higher volatile portfolio will produce more wealth over time.

Their framework can also be placed into a Liability Driven Investing (LDI) framework outlined in my earlier posts. In my mind the right “combination of growth and protection” is equal to the right combination of a return seeking portfolio and a liability hedging portfolio as outlined in my earlier posts.

Lastly, if the economic / market case for alternatives was strong in 2015, it must be even stronger in 2018, particularly given many Alternative strategies are more easily accessible, transparent and fee competitive. A number of Alternative ETFs are also appearing. (Not that I am keen on providing market forecasts – more on this in later posts).

Should Liquid Alternatives Be Part of the Core Allocation

 

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Robust Investment Portfolios

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Happy New Year

As the New Year begins, a year that is likely to be a bit tougher than the last, it is good to reflect that the right investment focus is being maintained.

Most of the discussion within the Investment Industry is on the inconsequential and often to short term in focus.

I have had the honour of managing and determining the investment strategy for a large Australasian insurer.

There is lot to learn from managing insurance portfolios, not the least focusing on the right investment goals, understanding risks and the level of tolerance for risk, appropriately benchmarking what success looks like, and taking a longer term perspective.

These issues are well articulated in this article.

Build robust investment portfolios. As Warren Buffet has said: “Predicting rain doesn’t count. Building arks does.”

Therefore, make sure your investment portfolio is an all-weather portfolio and the ongoing debate and focus is always on the consequential.

 

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Advancements in Portfolio Management

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Hi. This is my first post.

Welcome to Kiwi Investor blog.

The attached article provides insights into the current and likely future direction of the Global Funds Management industry. I have a lot of time for the EDHEC Risk Institute.

This will appeal to those within the industry and those interested in ensuring their investments are being well managed.

None of it is of course investment advice. I’ll add material over time with the view that we can all build better portfolios that address our key investment risk: the failure to meet our investment objectives.

EDHEC-Whitepaper-JOIM

 

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