Portfolio construction is the next step in the investment management process. This is where we blend together asset allocation and manager selection decisions to form a coherent investment proposition. Target allocations will evolve as and when necessary. Although volatility can be uncomfortable for investors, especially when it leads to short term drawdowns in portfolio valuations, it can provide us with more opportunities for attractive investments. This is a key aspect of portfolio construction – maintaining a well-diversified portfolio reduces the impact of volatility on a portfolio and puts us in a stronger position to make the most of market dislocations.
Another key aspect of the portfolio management process is monitoring and managing risk exposures, which we do continually and systematically through proprietary tools and analysis. Our aim is to ensure that the portfolio is well diversified and can prove robust through different environments. Future events, opportunities and downside risks are inherently difficult to predict, so we try to ensure that the portfolio is not held hostage to one particular outcome in markets, but rather aim to maximise the probability of meeting investor goals across a range of scenarios.
The intention is for our portfolios to be well diversified by asset class, currency, geography, investment style and across several managers, in order to provide sustainable returns and reduced volatility.