Discretionary Fund Management Asset Allocation

Understanding portfolio planning enhances the effect that asset allocation can have. It is widely accepted that appropriate asset allocation is the most important contributor to an overall return that matches investor needs.

Asset Allocation is simply how value is spread over various classes of investment. The best-performing investment areas vary from year to year and are not easily predictable, so a mixture of asset classes is more likely to meet your goals. It is also more likely to match your attitude to investment risk.

How investments perform in relation to each other is known as ‘correlation’; the ideal is a ‘lowly correlated’ portfolio of funds, so falls in value in one area are offset by gains in another. Highly correlated portfolios (where funds all fall and rise together) clearly concentrate risk and the result could be likened to a white knuckle ride as the portfolio rises and falls over time.

Academic research has painstakingly explained the importance of asset allocation, a Government sponsored review (Sandler Review) in 2002 highlighted the importance of Asset Allocation over fund selection.

Core assets to include are Cash, Fixed Interest, Equities (Shares), and (Commercial) Property. Other areas may be relevant to individual clients