Portfolio design

At MLC we put investors at the centre of our thinking and focus on what really makes an impact on investor outcomes – asset allocation. With this in mind, we concentrate on finding the right allocations between asset classes and sub-asset classes and design portfolios which help investors achieve their financial goals.

Formulating the portfolio
Firstly we consider the objectives of the portfolio and the level of volatility expected. We then look at the different classes of assets and calculate how we expect them to perform over long periods of time. This helps us to formulate the strategic asset allocation for the portfolio because longer-term data is far more reliable for predicting the outcomes of asset classes.

To reduce risk we invest in many asset classes because they each perform differently in different circumstances. This diversification also reduces volatility and leads to smoother returns for the overall portfolio.

Fine tuning the portfolio
We confirm the robustness of the portfolio’s strategic asset allocation by stress-testing it in around 40 potential economic and investment environments and against historical market performance data from the last 100 years. This allows us to develop a clearer picture of how the portfolio will perform in different market conditions and provide investors with portfolios which have already experienced a range of future outcomes.
The process helps us with any fine tuning of the portfolio to improve the outcome for clients.

Strategic overlay
Our Strategic Overlay process is used to make changes to the portfolio depending on our medium-term view (3-7 years) of the market environment. We’ll make these adjustments to the portfolio if we believe we can reduce risk or enhance returns for clients.