Designing a specific portfolio
When designing specific optimized portfolios, the most important aspect for us is to understand the needs and constraints of our clients. Our experience in the sector has shown that an understanding of the nature of the commitments and liabilities of our clients such as asset-liability matching, risk appetite, etc, is crucial to this effect.
Consequently, our recommendations take into account four main considerations when designing a specific portfolio: r eturn targets, risk management, diversification and liquidity requirements and are aligned with best investment practice and prudence guidelines.
We are conscious that the portfolio proposed to you should either match
or outperform the expected return of your benchmark for e.g.
performance of a typical equity portfolio in the relevant category.
This return is generally compared to the return on a selected benchmark
index.
As for risk management, our main focus revolves around minimizing the
probability and magnitude of investment losses and producing consistent
returns. We believe that it is very essential to take into account
return per unit of expectation of loss instead of the traditional
volatility measures such as the Sharpe ratio,
widely used by fund rating agencies to evaluate mutual funds.
Traditional measures unfortunately do not distinguish between upside
and downside price movements and can lead to questionable risk
assessments.
Diversification of each of our selected underlying funds across markets
and sectors is another important component of our portfolio strategy
and further contributes to risk-reduction and moves our portfolios
closer to the efficient frontier.
The key to an optimal diversification in our proposed portfolios is to
choose underlying funds whose price movements are not strongly
correlated.
Liquidity is another important aspect when managing our clients’
portfolio. Assets of the fund should be liquid, i.e. to sell with
little price fluctuation and also low credit risk.
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