Strategic Asset Allocation
THE ASSET CONTEXT
QMS Advisors’ strategic investment decision making process relies on assumptions that incorporate future market expectations as well as the expected changes both in the underlying fundamentals and structure of the markets. We rely both on our qualitative and quantitative in-house research, as well as on the inputs and expertise of a range of industry contacts such as portfolio managers and product specialists to derive our expectations. We strive to ensure that our assumptions and their underlying rationales are consistent across asset classes by submitting them to rigorous qualitative and quantitative reviews.
QMS ADVISORS' APPROACH TO DERIVING CAPITAL MARKET ASSUMPTIONS
QMS Advisors offers a review of its framework for deriving return, volatility and correlation expectations for sovereign and corporate bonds, equities, alternative investments (hedge funds, private equity, commodities and real estate), and foreign exchange. Our strategic asset allocation process involves 45 markets across seven asset classes for which our team provides long-term total return forecasts, volatility and correlation estimates. Our approach consists in obtaining a set of model-derived expectations, and to further refine our forecasts with numerous qualitative inputs; a process that relies on the contributions of a range of industry experts including economists, portfolio managers, and product specialists.
Our rigorous quantitative and qualitative review processes ensure that our assumptions are based on sound economic and financial rationales. We further strive to utilize both comparable methodologies and common return drivers across assets to achieve consistency across our expectations (i.e. universal underlying macroeconomic assumptions):
The object of this exercise is to arrive at five-year return and volatility forecasts for each of the assets, which are then used as inputs for the final optimization process. To an extent, forecasting returns for a five-year period is less error-prone than for a much shorter period and also lends itself to a greater reliance on longer-term fundamentals as drivers of future performance.
REGIME-BASED STRATEGIC ASSET ALLOCATION:
QMS Advisors believes that regime-based asset allocation combined with tail risk hedging has the potential to deliver significant benefits when compared to traditional investment policies, which are most commonly static and benchmark based. Contingent on economic foresight, implementation of a regime-based approach can potentially help mitigate downside risks and add to cumulative performance over time, translating to an improved distribution of overall portfolio returns.
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Strategic Asset Allocation
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