Page 13 - Ives, Martyn - Review Report - July 2020

Portfolio construction

Portfolio construction is the process of
blending various asset classes and
investments to produce a portfolio that will
achieve your long-term investment goals
based on your predetermined risk profile,
and is the final step in the process.

The aim is to build a strong, sound
investment portfolio that will:

ꟷ perform consistently,
ꟷ deliver superior returns in most market
conditions; and
ꟷ be competitive relative to market
benchmarks.

Constructing an investment portfolio ꟷ What does the rest of the portfolio look
involves choosing which assets to invest like?
in (asset allocation) and which investment ꟷ What is the outcome of a backward-
managers or listed securities to invest in looking analysis post the product’s
(investment manager and security addition?
selection). ꟷ What is the expected outcome
It does not follow a regimented process, (scenario testing) on a forward- looking
but the questions below are some of those basis post the product’s addition?
we ask ourselves before providing the final
recommendation and implementing it.

ꟷ What allocation will the fund receive?
ꟷ What will drive this?
ꟷ Does the fund fit into the existing
portfolio?
ꟷ Where the portfolio is new, can
exposure be built around the strategy in
question?
ꟷ Are the incumbent or proposed
products complimentary?
ꟷ Is there duplication of styles /
approaches?
ꟷ If a more active approach to asset
allocation is used, for example dynamic
asset allocation (DAA), then what is the
manager’s “half-life”?
ꟷ Is the product in question effective in
executing the DAA decision?