Portfolio Construction
We believe that Asset Allocation is the most important factor in determining overall risk-adjusted portfolio performance. Asset allocation is a medium to long-term process designed to capture more macro-economic determined events through investing in asset classes that we expect to appreciate and withdrawing from those we expect to decline.
More importantly asset classes allocation reflects the level of medium to long term risk that can be tolerated and dictates the desired level of short term volatility that that can endured by an investor. The level of risk which can be tolerated, more or less commensurate with the investor’s lifecycle theory.
We ensure that the asset allocation of the portfolio between the various asset classes (equity, fixed income, alternatives and cash, etc.) is continually managed according to the changing economic cycles and financial markets. However, this process is always managed in accordance with the investment mandate and corresponding risk profile.
We apply both quantitative and qualitative criteria in constructing and managing portfolios. We believe in efficient portfolio diversification by maintaining a desired correlation matrix which will encompass the desired level of risks with the expected returns. A predetermined correlation matrix is important, since we do not believe in over diversification since it is a sign of poor conviction and can only dilute the potential of an investment portfolio. We prefer investments with relatively higher Sharpe ratio and improve existing portfolios by adding investments which will only improve the risk-adjusted return.
