Institutional Investor interviews Eric Upin to discuss global-endowment style investing.
How do institutions approach global multiasset-class investing?
It’s all about asset allocation, manager selection and risk management. Global multiasset-class investing is a team sport, whether you’re an endowment, sovereign wealth fund or foundation. When you’re investing around the world, trying to bring professionals together to make judgments such as whether you should be overweight or underweight Europe, real estate or other asset classes, the more smart people you can bring into the tent who do what you do — and who can help provide opinions and spark ideas — the better.
As a quantitative manager, this description of how to ultimately determine an asset allocation is completely foreign. Maybe it works great for some, but the idea of trying to get an edge on the market by seeking out “smart people” who can help provide opinions and spark ideas seems problematic. We have no aversion to smart people, however we do have a strong preference for removing the role of judgement calls in the investment process. For us, the asset allocation decision goes something like this. We determine an investment universe that is comprised of a broad range of asset classes. We determine the model constraints (i.e. how much we can overweight or underweight a given asset class), and then apply our relative strength methodology to ranking the different asset classes and each of the individual components of the investment universe. Then, our weights to different asset classes and exact holdings are determined by a systematic relative strength model. Likewise, sell decisions are also based on this relative strength ranking process.
Those interested in seeing just how effective this quantitative approach to asset allocation can be over time, can read Tactical Asset Allocation Using Relative Strength by John Lewis. This approach is also working well this year, as discussed in DWTFX Tops Peers.
Past performance is no guarantee of future results. Please click here and here for disclosures.
