allocating assetsAllocate Assets - in detail

Our approach to asset allocation is straightforward: we look at all the asset allocations, see which one looks best based on Insight's simulations and choose that.

This approach is straightforward but depends upon:

  • Having a model that gives a good view of the future.
  • Knowing what good looks like.
  • Being able to find the best.

The first requirement is very demanding for a but meeting it was a design goal for the Insight model. In particular, the model has to strike a very delicate balance and updates must imply proportionate responses to changing market conditions.

In contrast, defining an allocation, in terms of what looks best, makes it easy to relate allocations to their intended purpose and to define how they should respond to changing conditions. In addition to the freedom to look directly at what is important, many considerations are taken care of by Insight.

With a model and a definition of what's best in place, finding the asset allocation becomes a purely technical problem of mathematics and making computers work fast.

A typical application is our standard EValue adviser model portfolios.

These have a term and risk level. We look for the highest average growth rate over the set term and confine the search to those allocations where the variance of the growth rate over the term is below a limit corresponding to the risk level.

If our Insight were simply a covariance matrix and set of expected returns this would look at lot like standard Markowitz optimisation and the term would make no difference to the allocation. However, Insight has a more realistic view of asset behaviour and term makes a difference to expected returns and risk.

annualised return
annualised risk

That means that consideration of term is transparent and doesn't have to be implemented by a hard to explain rule of thumb or, worse, ignored. Instead it comes out as a natural result of the straightforward definition and the realistic model:

asset allocation over 5 years
asset allocation over 5 years
A succesful approach

We have successfully used this approach for risk targeted model portfolios for 15 years and for fund allocations for 10 but the approach is also very effective at tackling more complex situations like saving for retirement income where simple summary statistics struggle to capture important aspects of the situation. The approach provides consistent results and automatic updates.

EValue offers allocations in several formats:
  • Standard risk and term targeted model allocations.
  • Bespoke allocations including analytics, support for management processes and compliance.
  • Online allocation optimisation.

All of these are deliverable in all of our usual formats as well as through various platform channels.

See other ways to use Insight or contact us to arrange a demo.

Other ways to use Insight  Arrange a demo
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