Fleming Europe Presents:
3rd Annual Asset & Fund Management
May 23 – 24, 2013, Istanbul, Turkey
According to a number of various studies, Strategic Asset Allocation is the most important determinant of the total return and risk of a broadly diversified portfolio.
Its primary goal is to create an asset mix which would provide optimal balance between the expected return and risk for a long term investment horizon – speaking of decades with a typical horizon being some 30 years. Often thought of as a reference portfolio, and following the Tactical Asset Allocation, Strategic Asset Allocation would be tactically adjusted on the basis of short-term market forecasts.
In determining expected returns, volatilities and correlations for equity, bond, commodity and alternative asset classes being a complex task, there are two basic approaches to assess the assumptions on asset risk / return characteristics: one of them satisfactory, the other one not.
According to the unconditional method, the expectation that past history will repeat itself, a simple observation can be used as a reliable guide to future events. However, this method is unsatisfactory and not adapted to the SAA problem, as it determines expected returns based on historical returns, without taking any structural economic changes and shocks, which may arise, into consideration.