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From PWM Research / Sub-Advisory September 1, 2006

Limiting risk and boosting returns

Benefits of diversification When constructing a portfolio, two main challenges present themselves – picking the right asset classes and then picking the best managers to run those assets. Choosing an asset allocation strategy can help protect you from downside risk as well as helping to ensure that you maximise the benefit from potential upside. Interestingly, diversification is one of the few elements in a portfolio that is also free. A strong investor can optimise their approach using the diversification tool. The last few weeks have exposed how quickly the direction of the markets can change, and investors’ risk appetite with it. It is moments like these that highlight the importance of protecting your client’s assets by holding as diversified a portfolio as possible. For example, while equities remain an attractive asset class with a return premium (over cash) of around 3 per cent per annum, they carry with them an annual volatility of 15 per cent, which can make your portfolio returns highly variable. It therefore makes sense to branch out into asset classes that don’t all behave alike, but can provide similar levels of return expectation. This is indicated by the correlation. For instance, if you add North American equity to a UK equity portfolio, the correlation is relatively high at 0.74; they behave in almost the same way (complete correlation being 1.0). Choose global high yield bonds instead (correlation of 0.36) and there is less likelihood of the two moving in sync and more likelihood of the combination working together to yield more robust returns. Combining multiple asset classes with a low correlation to each other has the potential to result in a more efficient portfolio, limiting your total risk and providing better opportunity for positive returns.

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From PWM Research / Sub-Advisory September 1, 2006

Quantitative funds: a clear decision

The rise of quantitative managers
Since the late-1990s, there has been substantial growth in the amount of assets managed by quantitative managers and using quantitative investment strategies in the institutional fund management arena. In the last several years this rapid growth has continued, as client demand has bifurcated between higher octane high alpha products and lower tracking error index plus products. Fund buying professionals are clearly looking for well-managed quantitative equity funds to put at the core of their client portfolios. Such funds enable fund buyers to reliably put in place what they hope are consistent asset class returns, often outperforming index tracking products, to construct successful portfolios and investment products.

From PWM Research / Sub-Advisory June 1, 2006

Boldly entering the alpha universe

From PWM Research / Sub-Advisory May 1, 2006

The four powerhouses of the future

Dr David Curtis, head of GSAM’s European Sub-Advisory business, discusses investment solutions

From PWM Research / Sub-Advisory April 1, 2006

Taking advantage of the opportunity to add commodities to your portfolio

Portfolio challenges It has long been recognised that investing in commodities can offer several benefits to a portfolio, including negative correlation to stocks and bonds and historically higher index returns. However, due to past legislation, such investments were only available to institutional investors. With the advent of Ucits III this has now changed and a more widespread investor base is able to consider the benefits of investing in commodities.

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