Delivering a high quality investment outcome through portfolio optimisation

By Alberto Cuccu | 4 April 2017

Alberto Cuccu - Chief Client Solution Officer, Objectway

Strategic asset allocation is the basic framework of the investment process and the first important choice to do.

According to Morningstar and its famous research of 1986, about 93% of the returns from investment were due to asset allocation. Today, the landscape is roughly the same: market movements and asset allocation, as stated by Morningstar 2010 updates, make more than 90% of returns. The remaining part is due to active portfolio management. A wide set of studies and market analyses confirms this finding, supporting the notion that strategic asset allocation is the most important decision in the investment process.

From a portfolio manager’s perspective, a wrong asset allocation process, in fact, may cause bad model portfolios assigned to customers, delay in adapting to market changes and lack of information tracing. Moreover, the complex set of variables to manage needs a structured rules system and tools for selection, pruning and normalization, simpler analysis process, proven strategic choices, less manual processes, operational risks minimization, certified algorithms and MiFID compliance.

In such a scenario, Objectway recognized a specific request for outsourcing this operating risk and created Optimo, the model portfolio construction solution.

Optimo allows managing the analysis of both strategic and tactical asset location inputs, by using optimisation approaches based on the mathematical methods developed by Black-Litterman. Leveraging on real time portfolio adjustments, Optimo reduces the complexity of asset allocation process and provides a valuable solution to define strategic and tactical asset allocation through MiFID-compliant portfolio generation.

The result is the legendary efficient frontier: the optimal combination of risk and return.

In order to drive the best portfolio selection, other parameters are available, such as rolling volatility or long term volatility, Value at Risk, Conditional Value at Risk, or relative measures as tracking error volatility and so on.

An efficient and dynamic model portfolio construction provides agile and swift reaction to market fluctuations, with a balanced management of strategic bedrock and tactical concepts.

Asset managers and investment advisory teams can now leverage on Optimo to assist in the complex task of managing their clients’ wealth.

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