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BFP Portfolio Construction Approach

A diversified portfolio by its very notion should contain exposure to a variety of asset classes, with those asset classes designed to behave differently in differing market conditions. in our view there exists a number of problems with current portfolio construction that results in these types of balanced funds not being very diversified at all:

  • Most traditional balanced funds contain a high exposure to equities which in itself is not such a problem if the equity portfolio contains an optimal number of shares, except that most traditional balanced funds also have a high total number of shares as well as high percentage overall allocation (generally around 60%) to equities. The consequent high number of shares, as a product of combining both Australian and International equities, results in the return characteristics behaving more like index type funds.
  • Most funds contain very little exposure to alternative assets such as infrastructure and commodities.
  • Most funds will not employ any large tactical asset allocation tilts; for instance, say taking 50% of the growth assets and converting them to cash during market downturns.

Our approach is to look outside the traditional approach to portfolio construction with a view to providing more consistent returns more often.