Every investor has preferences such as tolerance for risk, investment horizon, liquidity requirements, aspirations for a targeted return, choice of alternative assets as well as levels of annual portfolio turnover for tax planning purposes amongst others. A bespoke asset allocation approach takes these into account. ActiveAllocator allows for:
Selecting portfolio risk target range – whether one has a low, medium or high risk tolerance or one can specify a clear number.
Specifying maximum levels of illiquidity – the level of illiquidity a client is comfortable with.
Setting limits on alternative investments and types – some investors believe in passive management while many others see value in actively managed Alternative Investments as well as actively managed funds are valuable complements to traditional stock and bond holdings for affluent investors. However, including them in portfolios is extremely difficult. One reason is their heterogeneity and complexity. Another is that Modern Portfolio Theory or MPT, does not work in holistic asset allocation. But simply excluding them in model portfolios curtails investor choice and their potential benefits.
Providing for maximum turnover – some prefer to own allocations that remain largely static while others are comfortable with higher levels of turnover.
Targeting returns – clients often have a general expectation of expected target return. Most clients see historical realized returns but wish they had a way to automatically calculate the target return of their existing holdings as a useful starting point.
Setting an investment horizon – clients have different investing horizons which can heavily influence choices in both asset allocation and portfolio construction.
Asset class exposure constraints – the maximum or a minimum amount of exposure to any asset class.