Building Your Optimized Portfolio
The first step in building optimized portfolios involves the performance of extensive quantitative analysis using economic inputs. Our experienced team of analysts uses its seasoned judgment to generate return assumptions and investment themes. Ultimately, economic forces are a major undercurrent in developing our Capital Markets Forecasts and other insights that inform the asset class projections.
Insights from our analysts, strategists, and economists help us capitalize on opportunities and side-step challenges for your portfolio. The forecasting process:
- Begins with a fixed set of asset classes, each with its own risk and return properties
- Accommodates current market realities and reflects our economic outlook
- Looks past traditional asset class breakdowns to diversify by the economic drivers of returns (such as inflation, dollar exchange rates, oil prices, and credit spreads)
- Leverages qualitative* insights and analysis from our experienced investment professionals
Tactical (short-term) asset allocation
Current portfolio positioning and adjustments are informed by our proprietary research, the insights of investment professionals, and managing Investment Committee in an effort to anticipate market, economic, and geopolitical developments.
Our one-year projection for 2021 is Global Positioning Systems: Recalculating in light of detours, bumps, and blind spots. This year's themes are:
- The U.S. economy—late-cycle emergence
- Inflation and growth—global-U.S. divergence
- Valuations, yields, and volatility—alternative resurgence
Strategic (long-term) asset allocation
Our themes for 2016–2026 were set forth in Wheat from the chaff: obstacles and opportunities. Long-term projections are revisited every few years and aim to provide:
- Better risk-adjusted returns
- Higher Sharpe ratios
- Optimization for drawdown risk
We utilize a proprietary research-based model to optimize a combination of solutions across portfolios, accounting for key factors, such as cost, ongoing alpha, and tracking error, to name just a few.
The high-quality solutions—whether internal or external—are those in which potential added value is expected to exceed fees and other costs. With an eye toward value, opportunity, and risk, the initial search and continuing review processes consist of:
- Scrutinizing philosophy and process, aimed at identifying tax-efficient solutions with minimal turnover to make trading work for your bottom line
- Collecting and analyzing data regularly to compare performance on a risk-adjusted basis relative to peer group and benchmark
- Performing ongoing due diligence to help ensure managers adhere to their particular style and process
- Making in-depth qualitative* and quantitative assessments to provide forward-looking conviction and help distinguish manager skill from luck
- Combining complementary investment strategies and styles designed to deliver consistent performance and effective risk management
Construction of optimized portfolios
From our array of high-quality solutions, we create “optimized” portfolios that seek to provide you with enhanced upside with reduced downside exposure to drawdown and volatility. To put it simply, optimization involves:
- Determining a high-quality combination of asset classes (equities, fixed income, and cash), factoring in return expectations, asset class volatilities, and the correlations of results among various asset classes
- Substituting drawdown for volatility in developing the desired combination of assets for given drawdown levels
- Better enabling an investor to manage the degree of downside risk in a portfolio
Learn how our disciplined, repeatable investment process seeks to enhance the likelihood and timing of achieving your goals.
*Emphasis on qualitative factors in the manager selection process is likely to result in the availability of investment strategies managed by affiliates of M&T Bank on our service platforms, and may influence specific recommendations. In many instances, the use of such affiliate offerings can result in additional revenues to M&T Bank or the affiliate as compensation for investment management, execution, administration, or other services.