Page 13 - PSK_April 2023_Thomas Illinkovski

Portfolio construction

Portfolio construction is the process of ꟷ Is there duplication of styles /
blending various asset classes and approaches?
investments to produce a portfolio that will ꟷ If a more active approach to asset
achieve your long-term investment goals allocation is used, for example dynamic
based on your predetermined risk profile, asset allocation (DAA), then what is the
and is the final step in the process. manager’s “half-life”?
ꟷ Is the product in question effective in
The aim is to build a strong, sound executing the DAA decision?
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
involves choosing which assets to invest
in (asset allocation) and which investment
managers or listed securities to invest in
(investment manager and security
selection).

It does not follow a regimented process,
but the questions below are some of those
we ask ourselves before providing the final
recommendation and implementing it.

ꟷ What allocation will the fund receive? ꟷ What does the rest of the portfolio look
ꟷ What will drive this? like?
ꟷ Does the fund fit into the existing ꟷ What is the outcome of a backward-
portfolio? looking analysis post the product’s
ꟷ Where the portfolio is new, can addition?
exposure be built around the strategy in ꟷ What is the expected outcome
question? (scenario testing) on a forward- looking
ꟷ Are the incumbent or proposed basis post the product’s addition?
products complimentary?