BlackRock iShares analyses asset allocation and trends

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Ursula Marchioni, (pictured), Chief Strategist EMEA, iShares BlackRock and her BlackRock Portfolio and Analysis (BPAS) team have published a portfolio analysis of asset allocation and trends in EMEA portfolios, based on over 600 client portfolios, which indicates an increasing role for alternatives, but also highlights the issue of ‘forgotten risk’.

The report reveals that the average asset allocation within each risk category, as well as the overall, showed that alternatives play an important part in portfolio construction. Analysis revealed that alternatives continued to be a key asset class in the sample portfolios, averaging 21 per cent – 25 per cent of allocation across risk categories in portfolios analysed throughout the last calendar year.

The team found that investors often make strategic decisions based on their asset class views, but asset allocation does not equal risk allocation. Analysis of portfolios often brought to the surface the issues of forgotten risk, particularly FX - the analysis found that FX risk is on average the second largest portfolio risk contributor, after equities.

Cash allocations remained at high levels in the sample portfolios analysed throughout 2018, at an average of 9 per cent, however investors may benefit from moving part of these cash holdings closer to their strategic asset allocations if the reason for holding cash is mainly due to lack of conviction in any particular strategy.

The study concludes that simply ticking the box of alternatives investing is not enough to build a resilient portfolio.

“Firstly, it is important to decide the outcome its role in the strategic asset allocation aims to achieve. Secondly, we invite investors to manage alternatives dynamically across various strategies, such as within commodities, hedge funds and private markets, rather than remain siloed within one segment. Finally, we invite clients to adopt the right investment strategies, whether alpha seeking or index to build a more efficient portfolio, and be able to have the capacity and budget to get the most out of alternative investing.”

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Beverly Chandler
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