The starting point for modern portfolio construction should be strategic allocation and the volatility versus those allocations, unlike the traditional approach of combining 'best in class' managers into a portfolio
Portfolio construction in a fund of funds (Fof) context is often overlooked and under-appreciated by both FoF managers and investors. The traditional approach to FoF management has been to select 'best in class' managers and combine them in a portfolio. Portfolio construction is undertaken by either an equal weighting of those managers, or an approach where the preferred manager has the largest weight. The result is a portfolio where risk is a by-product. For the more modern portfolio construction process, the starting point should be the strategic allocations and the risk versus those al...
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