AA UNION CAPITAL INVESTMENT SOLUTIONS & PRODUCTS - Special topic

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Strategic asset allocation outlook 2019

The Strategic Asset Allocation (SAA) review process is an essential part of any investment strategy to systematically achieve long-term investment targets.

This year’s annual review of our SAA broadly confirms the adjustments we made in previous years. The key innovation in this year’s SAA is the introduction of a new building block – risk premia strategies – which aim to further diversify mandates and stabilize their returns.
 
The SAA is the most important determinant of a portfolio’s performance. Meeting investment objectives while controlling for risk tolerance is the central pillar of our investment philosophy. AAUC conducts an annual review process to ensure that the developments in financial markets and global economies are accurately reflected in our discretionary mandates and advisory model portfolios. This diligent approach helps our clients achieve an optimal risk-return trade-off.

Positioning for 2019 and beyond

The Capital Market Assumptions (CMA), our five-year forward-looking expectations of returns, volatilities and correlations across a wide range of asset classes, form the basis of all portfolio construction. This year’s SAA review was conducted against the backdrop of increased productivity growth, global monetary normalization and a projected recovery following the market correction seen in 2018. Although we see a higher probability of a global economic slowdown over the next five years, the probability of a recession remains low over a one-to two-year horizon. Returns for most asset classes are expected to edge higher, while their relationships (e.g. correlations and relative rankings of returns) should remain broadly stable. We maintain our growth-oriented exposure in the SAA.

Risk premia strategies as a new building block

To further stabilize portfolio returns, we now include a small, yet meaningful allocation to market-neutral risk premia strategies. Carefully-tailored risk premia strategies are particularly effective for portfolio diversification thanks to their lower return correlations with core asset classes, i.e. bonds and equities. Moreover, they are designed to improve the risk-reward characteristiAAUC of our mandates and allow for a quicker and more cost-efficient multi-asset class exposure.

SAA for clients with a medium risk profile



The outer circle gives the weights for each asset category, whereas the inner circle (clockwise) provides a breakdown of each category into asset classes in order of appearance in the legend of the chart.







Important Information:

This part of the material: (i) aims to provide macro-market commentary; (ii) does not contain any statements or advice in relation to any specific marketable security or financial product; and (iii) does not take into account your personal circumstances and should not be treated as any form of regulated financial advice, legal, tax or other regulated service.