Map Millions of Securities to Asset Sub-classes in Seconds

ActiveAllocator.com now incorporates over 50 asset sub-classes to precisely map your funds and securities holdings. This allows for much better allocation decisions. Of course we do not suggest that an investor should include all asset classes in their allocation. Many of the asset classes have significant overlaps and some classes are subsets of other classes. For example, U.S. large cap value is a subset of U.S. large cap, which is a subset of U.S. Equity, which is a subset of Equity. Since some investors have preference for certain regions, (e.g. U.S. over Japan), certain market caps (e.g. small-cap over large-cap), or certain styles (e.g. value over growth), the inclusions of subsets give investors the flexibility to target specific types of assets they prefer to invest in.

Overall, we recommend that an investor specify 6 to 15 asset classes in making asset allocation decisions. If the allocation includes more than 15 asset classes, many of these classes will have allocations below 5% of the total portfolio value. Such small allocations have little impact on the overall portfolio’s performance. Besides, the large number of asset classes also requires investors to estimate more expected returns, risks, and correlations as well as set more minimum and maximum constraints. The estimation errors of all these inputs may lead to a worse portfolio in practice. On the other hand, allocation with fewer than 6 asset classes my not provide sufficient diversification as the final portfolio is often concentrated in two or three asset classes.

Author: Sameer_Jain

Partner. Sameer Jain is founder of FinTech ActiveAllocator.com, the world’s first portal that seamlessly integrates traditional, illiquid and alternative investments within portfolios. Prior to this he was Chief Economist & Managing Director at AR Capital. Before that he headed Investment Content & Strategy at UBS Alternative Investments. At UBS, he served as a non-voting member of the Wealth Management Research investment committee, and as a capital allocator was responsible for all illiquid investing including fund manager selection and due diligence across the platform. Prior to UBS he headed product development & investment research at Citigroup Alternative Investments that managed over $75 billion of alternative investments across hedge funds, managed futures, private equity, credit structures, infrastructure and real estate. Here he led a team that developed proprietary models for portfolio strategy and asset allocation with alternative investments, provided investment support and research to pension plans, sovereign wealth funds, endowments as well as internal clients including Citi Private Bank. Before this he was with Cambridge Alternative Investments and SunGard (System Access) where he travelled to over 80 countries for work across Europe, Asia, Middle-East and Africa. He has written over 30 academic and practitioner articles on alternative investments with thousands of downloads at SSRN, presented at over a hundred industry conferences and has coauthored a book, Active Equity Management. Mr. Jain has multiple degrees in engineering, management, public administration and policy and is a graduate of Massachusetts Institute of Technology and Harvard University. He is a recipient of the Alfred Sloan Fellowship and subsequently was a Fellow of Public Policy and Management at the Harvard Kennedy School of Government for a year. He holds Series 7 and 66 securities licenses.

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