Multi-managers invest by allocating capital to a selection of hand-picked manager strategies from a broad universe . We find that this approach of combining strategies leads to greater consistency in return outcomes and results in sensibly diversified portfolios . But this is easier said than done , with a key determinant of success being the asset allocation mix within portfolio construction .
A multi-manager strategy ’ s risk and return objective often dictates a portfolio ’ s strategic asset allocation , which is the long-term split across various asset classes . Strategies that place higher importance on growth tend to hold more in growth asset classes ( such as equity and property ), while more defensive strategies would hold a higher weighting in incomegenerating asset classes ( such as bonds and cash ).
Managers often seek to add incremental value by tactically up- or down-weighting asset classes relative to their longerterm weightings , depending on their attractiveness . However , one must be quite careful in doing so because , as studies show , the incremental value-add from applying a tactical asset allocation overlay is generally not as significant as one might expect . We , therefore , tend to be very disciplined regarding the timing and extent to which we tactically alter the mix of asset classes in portfolios .
At PPS Investments , tactical asset allocation changes are driven by a house view process , which considers each major asset class along three different axes . The first and perhaps most important is valuation ,
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