Investors are increasingly reassessing strategic asset allocation models in favour of factor-based approaches such as beta strategies in a low-return environment, which can offer better risk weighted returns.
Such was the finding from State Street Global Advisors (SSGA), which said majority of investors acknowledged a need for change, with many stating that more education was a necessary step for building confidence and adopting new models.
SSGA chief portfolio strategist, Lori Heinel, said: “Many institutions are struggling with different investment policies that don’t meet their needs”.
“Investors will need to develop the appropriate knowledge base and expertise, secure the support of key partners like boards and participants, and weigh their overall objectives,”
The survey, which interviewed 400 global institutions, found they were looking for a 10.9 per cent return on their long-term portfolio, with just 13 per cent of respondents saying that their asset classes were performing above their expectations.
Of those who are experiencing returns below expectations, 84 per cent believe that portfolio under-performance is set to continue over the coming year, indicating opportunities for a new approach.
SSGA head of investments, Kevin Anderson, said that many investors were beginning to question traditional investment models.
“The models of investing across the institutional landscape are evolving as institutions are beginning to question whether they can achieve objectives through traditional investment models in the current lower-for-longer return environment,” he said.
“Not only does this challenge strategic asset allocation models by forcing greater consideration of risk — it confronts investors with a need to focus from a top-down perspective on the drivers of returns in their underlying asset class choices.”
The evidence of a shift is clear, with 39 per cent of respondents in the Americas and 31 per cent in Europe, Africa and the Middle East already using smart beta to address performance shortfalls. Of these, three quarters report a moderate-to-significant improvement in meeting long-term aims.
