A FRESH PERSPECTIVE
ON ALTERNATIVES
THE MACRO PICTURE:
WHY DIVERSIFICATION IS AT THE TOP OF THE AGENDA
We believe a complex and rapidly changing world demands a new approach to portfolio construction. Portfolios which are built to be resilient, to withstand uncertainty, and with client outcomes at their heart. Here’s a quick look at some of the headwinds that might encourage investors to think more broadly about how they allocate money:
DIVERSIFYING RISKS IS VITAL
Within a traditional portfolio (equity/fixed income), a disproportionate amount of risk is attributable to equity market risk (dotted portion below).
IMPLEMENTATION: ALTERNATIVES ROLE IN INVESTOR PORTFOLIOS
Over the last two years, the BlackRock Portfolio Analysis and Solutions (BPAS) team has analysed the asset allocation and strategy trends of over 600 client portfolios across EMEA, with an estimated USD$160 billion of assets under management. Here are two key trends that came through the research:
BlackRock noted the following asset allocation models across client portfolios, depending on the desired risk profile. The average asset allocation within each risk category, as well as the overall, showed that alternatives play an important part in portfolio construction.
Regardless of the target risk profile of the portfolio, there is one consistent theme where many asset allocators were in agreement:
the importance of alternatives within portfolios.
ALLOCATION BY ASSET CLASS EXCLUDING ALTERNATIVES
Source: Mercer Growth Portfolio Toolkit, August 2016
ALLOCATION BY ASSET CLASS INCLUDING ALTERNATIVES
Source: Mercer Growth Portfolio Toolkit, August 2016
Analysis shows that by adding an allocation to alternatives (dotted portion below), an investor can diversify parts of the portfolio’s overall equity risk due to the diversifying characteristics of alternative investments.
Source: BlackRock Portfolio Analysis and Solutions team (BPAS). 600 portfolios estimated at US$160 billion AUM collected from wealth managers, private banks, financial advisors and family offices from January 2017 to December 2018 across 13 major EMEA countries.
Capital at Risk: The value of investments and the income from them can fall as well as rise and are not guaranteed. The investor may not get back the amount originally invested.
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