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Faced with an array of complex issues, today’s institutional investors seek an ideal allocation of risk that doesn’t inhibit growth, but does limit volatility and downside risk.
Unfortunately, the investment options available to achieve these goals tend to be confined to portfolios that are inflexible and lack the dynamic qualities necessary to capitalize on opportunities.
What might such inflexibility look like? Consider a factor-oriented low-volatility equity strategy. High valuations of low volatility stocks, crowding of portfolio exposures, and interest rate sensitivity make these strategies susceptible to underperformance in certain conditions. Similarly, strategies that control risk exclusively through the volatility markets are potentially exposed to the high costs associated with holding volatility instruments for long periods of time. Such strategies can expose investors to a variety of unintended, and often unmanaged, risks.
At Aberdeen Standard Investments, we believe that combining an actively managed growth portfolio with a tailored set of diversifying positive return positions can help manage a wide range of risks. This robust approach has the potential to provide investors with a more sustained way of dampening of volatility while achieving attractive long-term returns.
Allocations are made to a wide range of diversifying positions, including currencies, interest rates, and relative value equity positions – all expected to deliver a positive return over time. The returns are anticipated to occur at different times versus the growth part of the portfolio. Advanced risk tools are then used to effectively calibrate the diversifying return sources’ protective qualities with the effects of shocks on the growth portfolio.
When a return seeking growth portfolio is combined with enhanced diversification positions, it offers institutional investors potential for superior risk-adjusted performance that represents the next generation of investing. That’s innovation that provides investors with the best of both worlds.
