Whether investors are aiming for a cautious approach or a riskier investment profile with the potential for higher returns, Architas' Blended Fund range is designed to match a range of investor risk appetites. And like many asset managers, Architas predominantly uses two approaches to define asset allocation within the five risk bands used in the Blended Range - strategic and tactical.
Whilst risk model provider EValue's quantitative approach to asset allocation takes into account the long-term performance of different asset classes and the likely future performance given current valuations, along with long-term measures of volatility and correlations with other asset classes. Yet as with most systems of its kinds, EValue focuses on the long term; it is unable to analyse short-term market movements and fluctuations. So whilst it would have seen that in Q1 2020 markets fell by a record percentage before rebounding, it will not be able to factor in the cost of the coronavirus and lockdown and its impact on markets. Similarly, it is not able to consider ongoing Brexit woes, geo-political trade wars or the outcome of the US election in 2020.
But it is Architas's ‘active' approach to the risk model's constraints that are helping it to take advantage of better long-term opportunities, says Architas' Deputy CIO, Sheldon MacDonald. "The EValue model we use is unique to us, and it has been designed specifically so that we can work with them to define the asset classes that are offered to the model, determine the time horizon(s) we want to look at, and also the number of risk levels that we want to use. In addition to this, we as portfolio managers can introduce constraints into the model where we think it is necessary."
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