?Have your cake and eat it?
Clients may describe a chunk of capital as ?excess?, but you can always guarantee that an eagle eye will be kept on the bottom line. Unless we are formally instructed to manage assets relative to a pure equity benchmark, therefore, we would advise giving at least equal importance to absolute and relative return issues when agreeing the mandate.
Private investors have always wanted to ?have their cake and eat it?, and why shouldn?t they? It is a perfectly natural reaction to the unnerving opportunities for making or losing capital to equal degrees in the same investment assets, but at different points of the cycle. The challenge for managers is to develop an investment process and products, which come close to meeting our clients? utopian aspirations.
Dynamic asset allocation
At the top of the process, you need an asset allocation model, directed by a good lateral thinker, always one step ahead of the market. There is no doubt that allocating with conviction between cash, bonds, equities and alternative strategies can add significantly more value to a portfolio?s long-term performance and risk adjusted return profile than any other investment discipline ? stock-picking, for example.