In a challenging backdrop, asset allocation may suit an approach that goes beyond the simplistic and considers both the source and diversification of risk.
While it is widely agreed within the investment community that asset allocation is the largest driver of long-term returns, it is an increasingly challenging task. This requires more than a simple static strategic mix of equities and bonds, which is akin to a rear-view mirror approach to driving. In an environment where future returns are more difficult to come by than over the recent past, how do you create a portfolio that will meet return requirements while navigating increasing risks and correlations?
The risk-return trade-off is a central concept for most investors, however this does not factor in associated costs. In an uncertain world, costs are one of the few real certainties. Nonetheless, just focusing on costs could jeopardise potential long-term return and risk objectives. It is important to note that risk measures such as standard deviation are just measures of ebb and flow- what is more important is the source of risk and whether you expect to be compensated for bearing it. For example interest rate risk (the sensitivity of a portfolio to changes in interest rates) has been suppressed since central banks began monetary easing, and is expected to heighten as it is unwound.
We believe an approach that goes beyond the simplistic, and considers the source and diversification of risk may help you to manage a portfolio against a challenging market backdrop. BlackRock’s Managed Index Portfolios (BMIPs) offer investors the ability to balance risk, return and costs through a range of actively managed strategies, investing globally using the firm’s extensive index and exchange traded funds. Leveraging BlackRock’s deep expertise in portfolio construction and risk management, the funds actively manage exposures to global equities, fixed income and alternatives, and seek long-term capital growth across low, medium and high risk categories.
To find out more about the BlackRock Managed Index Portfolios (BMIPs) please visit our website or contact us.
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