Feb 19

Back to Basics Portfolio Construction

My latest draft article submitted for publication in IFA can be found here. In an nutshell, one of the problems with asset allocation portfolio construction in recent years is the increase in the number of asset classes promising diversification benefits…hasn’t quite turned out that way. Secondly, we’ve seen equity-like risk creeping into the fixed interest and even cash asset classes which have created a few problems in recent times. Thirdly, dealing with rising inflation in retail investment portfolios has traditionally been dealt with via an equities exposure…this is prone to failure as equities can be a very poor hedge to inflation…inflation linked bonds and real assets (not stapled property securities) have proven to be the best inflation hedge.

Understanding total portfolio risks is essential to good portfolio construction and knowing how much market risk (including the possibly hidden equity-like risks) and liquidity risks to name a couple will remove more of the hidden surprises while all markets continue to be volatile.

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