Investment Banking News

ESG and active management driving change in portfolio construction trends

Posted by Anton Murray Consulting on . Posted in Investment Banking News


The rise of ESG and the breakdown of the traditional portfolio allocation have been contributed to a clear change in portfolio construction. Speaking at a media briefing in Sydney on Thursday, Heuristic Investment Systems head of asset allocation, Damien Hennessy, said the traditional 60:40 portfolio allocation is no longer viewed as the most logical investment ratio. “Bonds might still offer diversification in a deflationary scenario but with starting point yields so low and some emergence of inflation risk, we cannot be entirely confident that bonds will provide the buffer they have in the past. Investors have to consider other lines of defence for their portfolios,” Mr Hennessy said.

“A portfolio’s strategic asset allocation is one of the key drivers of the variability of returns across funds while manager selection is also critically important. Dynamic asset allocation provides a further source of return enhancement or risk mitigation for a portfolio. An investor ideally wants all areas contributing to better portfolio outcomes. “In addition to current elevated valuations, macro factors such as interest rates and inflationary pressures are increasingly having an impact on the strategic and tactical execution of asset allocation strategies.

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