Correlation does the work
Combining assets that have historically shown low or no correlation with one another reduces the risk of the portfolio, and can raise its return. A portfolio of equity funds and fixed-income funds would be expected to fluctuate less in value than its own constituents do, because of the way those constituents behave in relation to each other. The corollary is the one on Risk management: the level of risk that matters is measured across the whole portfolio, never on a single line.Collective vehicles or single lines
At group level the building block follows the size of the portfolio. Smaller portfolios use collective vehicles, and larger ones progressively add single lines, which allows more customisation while keeping diversification intact. That progression is set out on Our approach to investment.
Which funds are active and which are passive differs by asset class, and the split is published.
The equity core and its satellites
Within an equity allocation built from single lines, Bordier separates a long-term core from shorter-horizon satellites, at roughly two thirds and one third of the equity book. The two are selected on different tests, set out on Investment selection.What construction cannot do
Construction reduces risk. It does not remove it, and no combination of assets removes the macro risks. Whether the finished portfolio is appropriate is a separate test, made against the client’s own circumstances by whoever holds that duty.Related
- Strategic asset allocation, the weights this structure carries.
- Investment selection, how each holding is chosen.
- Risk management, the risks construction is set against.
- Private Asset Management, construction for larger portfolios.
General information only. Not investment advice, not a solicitation and not an offer. Eligibility, services and terms differ by jurisdiction and by client. Speak to your banker about your own circumstances.