Asset Allocation and Performance

INTRODUCTION

Where you invest should match your attitude to risk and expectations of the amount of growth and income you need.

Modern portfolio theory says that 90% of a portfolio performance is investing the right percentage in the right asset sectors at the right time.

This can be best seen in the chart in the Vanguard webpage, which shows the returns of each asset sector over the past 20 years. In fact, it’s interactive, so you can go back to 1970 to see how time in the market is more important than timing: View the Chart

The final 10% of your portfolio performance should come from investing in the right managers (ie, those that outperform the index, or add value). They are generally “active” managers, rather than the “passive” managers who seek returns equal to their respective benchmarks.

MODEL PORTFOLIO

We commenced our model portfolio on 1 January 2011 using research supplied by external research companies and our Licencee. We use a “core and satellite” approach in each asset sector (a core fund uses a multi-manager neutral investment style, blended with individual managers with opposite active styles) which give the ideal “negative” correlation. In other words, these managers are unlikely to hold similar investments and their performance (and risk) in any market condition will unlikely be the same.

We have added new Managers added over time (as noted) but replaced very few, as one of the major reasons for selection is outperformance of their respective “indexes”. Short term under-performance can and does happen for all managers, but the better companies are continually reviewing their investment processes to ensure major under-performance is limited both in time and percentage.