Our Approach
We have developed a novel approach to asset allocation that has been refined over decades of experience in the industry.
At Allocation Strategy, we invest significant resources into providing an intuitive and cutting-edge approach to tackling asset allocation problems. All of services are underpinned by a unified approach to thinking about financial markets and asset allocation. Below, we describe the key aspects of our approach. We also provide in-depth discussions in the Foundations series on ourInsightspage.
Research-driven
We ensure high research standards in all our work, and value the rigour that models and frameworks provide. We push the frontiers of industry and academic research on asset allocation and draw insights from other researchers and disciplines.
We maintain high quality data, model infrastructure, and research processes. These technologies and checks ensure high quality, efficiently delivered outputs.
Present-value understanding of markets
We consistently apply a state-of-the-art present-value approach to understanding assets. When viewing assets as sets of discounted cash flows it becomes much easier to understand which factors influence market prices over the short and long term, why asset prices move together, and how asset prices connect to macroeconomy.
We use proprietary models from our AS Asset Market and Macro Model (ASAMM), our suite of asset allocation models, to estimate what expectations are priced into markets. We uncover term structures of expected growth, risk-free rates and risk premiums. This allows us to understand asset returns in terms of fundamental cash flow and discount rate drivers. We can distinguish between cyclical and long-term expectations that can be directly linked to growth, inflation and monetary policy expectations.
Forward-looking, tailored asset allocation
We ensure that any asset allocation problem is approached by looking forward and avoid over reliance on the past. Our models and capital market assumptions, wherever possible, use forward-looking market and survey data as inputs. We avoid estimating expected returns or risk from historical returns.
We organise asset allocation by taking account of investors’ specific objectives, constraints and risk tolerance. We have developed tools that are designed for forward-looking and tailored asset allocation. Our AS Asset Market and Macro Model (ASAMM) includes simulation tools to project macro variables, asset markets and investor contexts over any horizon, and scenario tools to build hypothetical portfolio impacts that can depart from historical episodes.
