AAC has presented and reviewed three Combinations of three well diversified Managers and the important attributes that need to be considered in making a decision. Four qualifying questions should be brought to bear in the ultimate decision:

 

QUESTIONS  
  • How important is the lowest risk allocation?
  • How important is optimal Manager diversification?
  • Does the investor have a view of the present Market phase which would tilt the Combinations toward or away from the defensive characteristics?
  • Is there a client-directed requirement for minimum and average annual returns?
 

CLIENT MANDATE CONSIDERATIONS  

The final judgment is reserved for the tilting of the selection to conform to client risk and return criteria. The first step in developing a client mandate is to conduct a review of the asset consulting approach of Asset Allocation Consultants Limited (AAC), as well as its principles and practices. This includes the important elements of the Investor's nature, purpose and economic sensitivities. An example of two fundamental investment objectives may be defined as follows:

Strategic considerations to be operative in the asset allocation planning process arising from the stated objectives are:

  • Ensure both offensive and defensive performance characteristics.
  • Minimize drawdowns in degree and duration.

The Chart below provides a visual perspective of each Combination's capacity to achieve the particular client's objectives.

No Java SDK Support for Chart Application.

 

 

COMMENT  

This chart shows the rolling 12-month returns of the three Combinations as compared to the S&P 500 and T-Bill returns.

 
QUESTION  
  • Which Combinations conformed to the two return objectives?
Objective 1
Objective 2
COMBINATION 1
4
49
COMBINATION 2
4
49
COMBINATION 3
2
51
 

ANSWERS  
  • On the basis of this sample mandate, Combination 3 conformed to the first objective in all but two periods and led by 2 ending periods in the second objective.
  • However, Combinations 1 and 2 provided considerably more stable 12-month return patterns.
 

 
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