PORTFOLIO CONSTRUCTION - INVESTMENT STRATEGY, SIMPLIFIED
Dec 2021, By Michael Melluso
AlternativeSoft’s Manual Portfolio Construction (MPC) solution makes it easy to see the impact of different investment allocations within a multi-strategy portfolio. Model portfolios built in the MPC allow for investors to determine how their investments can be expected to perform with allocations of varying risk (measured by volatility). Furthermore, this article also provides a “what-if” scenario to show the investor how the differently risked portfolios act if there is an allocation to the fund being marketed. This demonstrates how the AlternativeSoft’s MPC can enhance a multi-asset allocation portfolio.
Take a simple portfolio comprised of cash, equity, fixed income, and property exposure. Each simulates a range of risk tolerances from an investor’s point of view. As risk increases, gilts and cash exposure decrease as more weight is allocated to riskier assets.
Morningstar data is available in AlternativeSoft allowing investors to use iShares ETFs as proxies for each industry sector.
Table 1 shows the 10 multi-asset portfolios, with Portfolio 1 being the “least risky” and Portfolio 10 being “the riskiest”. None of the portfolios use leverage.
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