Steve Treftz, Portfolio Manager of SEI’s multi-asset objective-based strategies, explains the reasons and benefits of building portfolios based on their objectives — blending asset classes to optimize for the underlying goal — and why we believe we can improve on the traditional asset-class approach to portfolio construction.
Why we use multi-asset strategies
Hi, I’m Steve Treftz, Portfolio Manager of SEI’s multi-asset objective-based strategies.
Today I will explore why we use multi-asset strategies and the roles they play in an asset allocation framework.
When we build portfolios based on their objectives — blending asset classes to optimize for the underlying goal — we believe we can improve on the traditional asset-class approach to portfolio construction.
We use our multi-asset strategies in asset allocation models for a few reasons:
- Dynamic Risk Management enables these strategies to effectively address evolving market conditions
- Varying Sources of Return make each strategy less beholden to any single asset class
- Enhanced Diversification Benefits arise from harnessing non-traditional asset classes in an effort to reduce correlations
It can be helpful to think about our objective-based strategies as seeking to manage the distinct risks that investors will confront in reaching their goals. Looking at their specific investment objectives, our multi-asset strategies include:
- Accumulation — this strategy seeks to reduce the high volatility that’s typically a byproduct of the concentrated equity risk associated with traditional high-target-return accumulation strategies. The variety of asset class exposures is designed to enable the strategy to perform more consistently across different economic environments than a concentrated accumulation strategy would be expected to perform.
- Inflation Management — this strategy seeks to maintain purchasing power against the erosive effects of inflation, while alleviating over-concentration in asset classes traditionally associated with inflation protection. We’ve identified asset combinations that have historically exhibited strong relationships with inflation and also provided sufficient levels of inflation- and risk-adjusted returns.
- Income Generation — this strategy seeks to reduce dependence on traditional fixed-income asset classes as well as the limitations and uncertainty that can create. In the traditional approach, higher income means higher risk, and while investors' nominal expected income may increase, so would their expected volatility.
- Capital Stability — this strategy seeks to manage the risk of principal loss. We focus on an asset mix that has historically produced stable returns across different economic environments. In short, our capital stability strategy seeks the most efficient returns for a given level of downside risk.
To recap, we believe that organizing strategies around investment objectives allows investors to construct more efficient portfolios for attaining their goals compared to the traditional asset-class approach.
Hopefully this has provided a better understanding of the role that each of our multi-asset objective-based strategies is intended to play in an asset allocation framework. We believe these strategies are versatile, and that they can be used on a standalone basis, in conjunction with one other, or as an integral part of an asset allocation.
This information should not be relied upon by the reader as research or investment advice and is not intended to be a forecast of future events, or a guarantee of future results.
There are risks involved with investing, including loss of principal. Asset allocation may not protect against market risk. Due to their investment strategies, these strategies may buy and sell securities frequently. High-yield securities may be more volatile, be subject to greater levels of credit or default risk and may be less liquid and more difficult to sell at an advantageous time or price to value than higher-rated securities of similar maturity.
The strategies may be subject to derivative risks, leverage risks, commodities risk, and foreign investment risks, which may increase volatility and may increase costs and lower performance. Commodities can be highly volatile and the use of leverage may accelerate the velocity of potential losses.
Information provided by SEI Investments Management Corporation (SIMC), a wholly owned subsidiary of SEI Investments Company (SEI).