The Big
Think
Constructing portfolios in an uncertain world
Constructing an investment portfolio is never easy , especially when markets are fickle . Reza Hendrickse , Portfolio Manager : Investments at PPS Investments , gives his take on how this should be done .
Investing and managing investments are never easy . This was yet again the case in 2022 which was a challenging year for investors . It highlighted the importance of investing in a resilient , welldiversified portfolio that can continue to deliver on its investment objective , even if the world turns out differently from what is broadly expected . To help navigate these challenging market conditions , one should consider some of the important principles of portfolio construction .
Portfolio construction is the process of applying findings from investment analysis in the context of a portfolio ’ s investment objective and an appropriate asset allocation .
Asset managers provide this service and manage investments on behalf of clients , continuously evaluating the performance of these investments .
For a multi-manager , portfolio construction is slightly more nuanced . It involves both asset managers as well as investment research and analysis . Portfolio construction may also depend on whether a solution is targeting an inflation objective over a particular time horizon , seeking peer-relative outperformance , or trying to outperform an investable benchmark .
Depending on the solution ’ s objective , the multi-manager might combine both specialist managers ( according to their asset allocation framework ) and multi-asset managers ( who follow their own asset allocation approach ), which could lead to a robust multiasset solution . This is the approach that we at PPS Investments follow while exercising freedom in deciding the specialist versus multi-asset balance , depending on the aim of the solution .
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When constructing portfolios , the risk and return characteristics of underlying investments should be carefully considered and aligned to the investor ’ s goals , time horizon and risk-return profile .
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