VIEWPOINT TACTICAL ASSET ALLOCATION
We have
always preferred
to be proactive and
forward rather than
backward looking.
We are very much
in the active camp
in terms of asset
allocation
“
”
David Hambidge, investment
director of pooled funds,
Premier Asset Management
BY NEAL UNDERWOOD
The multi-asset endowment
asset allocation model has
served institutions such as
Harvard and Yale in the
US extraordinarily well.
Both have grown their
assets significantly: over
ten years to 30 June, 2009,
Harvard’s endowment
produced an annualised
return of 8.9%, while Yale
returned an annualised
11.8%. However there is
a view, particularly given
the treacherous markets of
late, that this long-term,
strategic asset allocation
approach may have some
Asset alloc – Avg US endowment funds
Listed equity
Fixed income
Real estate
Commodities
Hedge funds
Private equity
Cash & other
A time for tactics
There has been an increase in the number of voices arguing against
the traditional endowment approach to multi-asset investing, with
many wanting to see a more flexible, tactical approach rather than the
static-for-the-long-term method currently used
0 10 20 30
%
40 50 60
Source: Frontier Capital Management
flaws. Over one year to the
end of June, for example,
the Harvard endowment
fell by 27.3% and Yale was
down 24.6%.
Partners Capital is an
adviser to endowments
and foundations including
11 Oxford and Cambridge
Colleges and the Nobel
Foundation. Stan Miranda,
the firm’s chief executive,
believes what is required
in these turbulent market
conditions is a more tactical
approach. “The problem
that most of them
encountered was one of
liquidity,” says Miranda.
Investments in areas such
as private equity, property
and resources tend to be
very illiquid, he says, and
even some of their liquid
investments, such as equities,
were still locked up
for three to five years.
l Fast-paced markets
He notes that groups such
as Lone Pine, who have
a strong track record in
managing long-only and
hedged equities, offer
investors a choice of being
locked in for one, three
or five years, with charges
reduced accordingly. “If
you add illiquidity from
some of the hedge funds
you get up over 50% [of
assets being illiquid in the
portfolio] pretty easily.”
The other issue, says
Miranda, is that most
people associate the
endowment model with
long-term static asset allocation.
“It is pointless to
try and time. If you pick
the best managers in each
asset class they can time
the market for you. That
was the belief, but what
was tested was whether or
not in extreme market circumstances
there are some
moves you should make. A
classic example was credit
in early 2009. All types
of credit looked cheap
– if you had a static asset
allocation you would have
missed an opportunity.”
David Hambidge, investment
director of pooled
funds at Premier Asset
Management, believes markets
move more quickly
than they used to, and
hence a tactical approach
to asset allocation is essential.
He has long been
an advocate of tactical
multi-asset investing. “We
have always preferred to
be proactive and forward
rather than backward looking.
We are very much in
the active camp in terms of
asset allocation.”
l Nimble movement
In Hambidge’s view, it is
not only important to make
the right asset allocation
call, but also how you play
a particular theme. “For
example, do you want to
play the equities market
via a higher beta fund
such as Richard Buxton’s
Schroder UK Alpha Plus or
via a structured product?”
he asks.
“With commercial property,
capital growth will
come through very fast.
You have got to be nimble
and you have got to be
prepared to change your
mind. Each day and week
you get more data – do not
be frightened to admit you
were wrong.”
At times like these, says
20 PORTFOLIO ADVISER [www.portfolio-adviser.com] JANUARY 2010
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