Multi-asset, multi-manager investment portfolios can be viewed as complex machines that, if properly assembled and managed, provide benefits far outweighing those of their individual components. The whole is definitely greater than the sum of its parts! Strategies Summit 2024 (Wed-Thu 21-22 Aug) challenges and refreshes your portfolio construction thinking by debating contemporary and emerging portfolio construction strategies to help you build better quality portfolios.

In a rapidly changing macro context, practitioners must be alert to powerful geopolitical, demographic, environmental, technological and sociological trends which are reshaping our world. From US-China tensions to declining birth rates, global warming, cyber-crime and housing shortages – a complex array of issues is changing the outlook for economies and investment markets. By understanding the interaction of such forces, practitioners can better manage risk and uncertainty, and design portfolios capable of improving the financial well-being of individuals.

Legacy active management is under pressure. Inconsistent performance and high fees have resulted in a flood of money to passive indices and private market assets. As some investors turn away from active management, a renaissance of modernisation is quietly underway. With clearer goals of how to contribute meaningfully to client portfolios, a breaking down of industry silos and the embrace of new technology, next generation active managers are able to exploit inefficient markets like small caps to deliver real alpha at lower fees – in other words, a portfolio that really is greater than the sum of its parts! Investors need to challenge conventional wisdom around investment style, process and active share and focus on durable sources of alpha that will improve total portfolio returns.

Infrastructure investments are different. They offer stability and growth and offer a compelling case as a worthy player and a diversifier in an investment portfolio. While the operating and financial performance of infrastructure assets has been structurally sound, the investment performance has been varied in recent years, reflecting the impact of rising interest rates. However, with a more benign outlook for interest rates conditions, there is an opportunity to capitalise on the innate earnings power of infrastructure assets.

The volatile markets of 2022 were a reminder for many that the 60/40 portfolio doesn’t weather all storms. The diversification benefits of fixed income can fade rapidly in an inflationary scenario. A renewed focus is needed to identify investment strategies that can better deliver optimally diversified portfolios to weather financial storms and provide more balanced growth for client assets. An Alternative Risk Premia (ARP) approach to investing, rooted in academic research, and blending various market-risk premia can generate a stream of returns that is uncorrelated with traditional asset classes. The whole really can be greater than the sum of its parts! By diversifying across risk premia, ARP can deliver more stable and resilient performance, even in volatile market conditions.

Increasingly within emerging market economies, there are many companies that have developed to challenge the world’s best businesses in terms of growth, resilience and profitability. Without the household name status and associated capital flows, valuations are attractive and do not reflect the underlying value of the business, plus they have a larger exposure to the uncorrelated and structural growth inherent in emerging markets. And, the ‘whole’ is a lot bigger than most people realise because there are many more ‘parts’ than just seven examples of such businesses – including companies that lead the world in electric vehicles, supply of hardware that enables the adoption of AI, and the digitisation of financial services – winning not only within their home markets but also around the world.

Did you ever wonder why so many pundits got their Australian house price forecasts so wrong? Real estate pricing is not driven by interest rates, population growth, or tax regimes. The factor that drives long-term real estate performance is the long run change in replacement cost – a factor ignored by many, yet which is unique to all other asset classes. And it’s because of this uniqueness that real estate has played (and will continue to play) a critical role in generational wealth preservation and diversification.

The 60/40 portfolio has been a robust model for achieving balanced risk & return characteristics in a portfolio for decades. Despite resilient returns of 8.5% p.a. with moderate (9.7%) volatility, evolving market dynamics and the outperformance of non-traditional asset classes have led some commentators to argue that “60/40 is dead”. It’s not dead. A portfolio with 60% exposure to growth assets and 40% exposure to defensive assets remains suitable for most investors. However, the composition of what is in the 60 and the 40 does need to change. The market growth and quality of private market alternatives provides investors an opportunity to meaningfully enhance 60/40 with higher returns and less volatility.

Higher rates and structural changes, such as tighter regulation, are reshaping both public and private markets, requiring investors to take a multi-sector and relative value approach across both opportunity sets. While there is an array of opportunities in high-quality fixed income and in areas of private markets such as asset-backed lending, certain sectors have become overcrowded, necessitating caution. Today’s environment underscores the importance of making the most of all the “parts” by using global diversification, prudent risk mitigation, and capitalising on emerging opportunities through active management.

Traditional stocks and bonds have long been the mainstay of investment portfolios. However, the breadth and depth of private markets increased significantly in recent years and practitioners can no longer ignore unlisted assets. When held alongside publicly traded equities and bonds, private equity, private debt and real asset strategies may bring significant benefits to multi-asset portfolios, providing access to unique investment opportunities.

Traditional stocks and bonds have long been the mainstay of investment portfolios. However, the breadth and depth of private markets increased significantly in recent years and practitioners can no longer ignore unlisted assets. When held alongside publicly traded equities and bonds, private equity, private debt and real asset strategies may bring significant benefits to multi-asset portfolios, providing access to unique investment opportunities.

Wealth management is in a post-product, post-service stage of development – it is now a design industry. In a highly competitive marketplace, where products are widely and cheaply available, offering a differentiated experience means delivering best-of-strategies solutions for specific client needs. This session explores key challenges and opportunities in multi-asset, multi-manager portfolio construction that practitioners should be thinking about, given the whole is greater than the sum of its parts!

With the body of human knowledge doubling in size every year, investors are drowning in data. Yet the emergence of artificial intelligence will increasingly help us manage the problem of cognitive overload. Indeed, such technologies are bringing about a new era, in which the logical and emotional hemispheres of the human brain are knitted back together, enabling a more holistic understanding of the world. The emergence of this superhuman consciousness will profoundly change how people think about the nature of reality – in finance, and more generally – revolutionising the way we manage risk and uncertainty.

The things that make people, people, are also the things that bind our portfolio construction methods together. Investment philosophies, beliefs and biases impact how we implement our technical skills by adjusting not only the angle of our enquiries but also how we interpret our results. As highly trained investment managers and advisers, we are impacted not only by our biases in behaviour, but also by the biases we hold that we’re not even aware we hold.

We humans by nature deal with much of our lives and memories in stories and story-like forms, to be dipped into for comfort and provide explanations. To excel academically and professionally, we need to think taxonomically, organising information in a structured hierarchy. But while these taxonomic processes help us early in our careers, they can also limit our perspective, making our thinking predictable and replicable by AI. To gain deeper insights, critical to long-term investing, we must adapt by integrating finance with other disciplines such as economics, accounting, finance, sociology, anthropology, psychology, sustainability, political science and philosophy. Adopting a holistic perspective can greatly improve problem-solving, bringing valuable benefits to our clients’ portfolios.

This is part 2 of the Hypothetical. This diverse panel of asset class experts discusses and clarifies the implications of the four scenarios for the medium-term (three-year) outlook for key asset classes, and then the Investment Committee (Summit delegates) votes to determine probabilities for each of the scenarios. The probabilities are an input into the Asset Allocation Roundtable (next session).

The inputs from the Asset Class Outlook Roundtable determine a headline Dynamic Asset Allocation (DAA) Growth/Defensive split for the coming 12 months, based on the 60/40 Neutral Asset Allocation (NAA). diverse panel of asset allocation experts discusses and debates key asset allocation and implementation decisions with reference to the NAA and within the context of the headline DAA Growth/Defensive split. The Investment Committee (Summit delegates) votes as the asset class decisions are being debated. Once finalised, the Investment Committee’s views (as expressed by the voting) then determine the DAA for the hypothetical portfolio for the coming 12 months.

Our diverse panel of experts debate which of the high conviction propositions they heard during Strategies Summit 2024 they most strongly agreed with and why, and which they disagreed with most and why – and the portfolio construction implications of both.