Many events have shaken the global financial markets since 2019, from the pandemic to the US-China trade war to the Ukraine- Russia war, to name a few. As a result, family offices and high net-worth individuals are changing their investment framework and portfolio-level strategies to create an all-weather portfolio.
The objective of an all-weather portfolio is to navigate and withstand the vagaries of economic, business, and asset cycles. As a result, a single investment style and a ‘buy & hold’ framework is transitioning toward a multi-investment style and ‘core and satellite’ framework. In addition to the benefits of diversification across various investment styles, this helps to keep the portfolio risk and volatility within the targeted level while exploiting opportunities. The advantage is that it removes the classic source of performance leakage from an inadvertent single investment style and buy & hold approach.
An investment style often describes the overarching approach taken by the fund manager when assembling a portfolio of assets. It provides some insight into what risks and return investors are likely to be exposed to and what will be the likely drivers of this return.
Investment strategies help investors choose where and how to invest as per their expected return, risk appetite, and time horizon. They are governed by a set of rules and procedures created to guide investors in designing their investment portfolios. Investors have transitioned to bucketing style strategies where investments are held in two or more investment styles that an investor understands and relates to. Many family offices and ultra HNIs have moved to the so-called core/satellite strategy where the core forms the bulk of the portfolio and satellite complements it, which is tactical allocation to explore opportunities to earn higher portfolio returns.
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