Changing Landscape of Portfolio Construction

There is no “one size fits all approach” when it comes to constructing an investment portfolio, especially in a time when market volatility and the flow of information can change investment decisions quickly. As such, it’s important for an investment firm and an investor to evolve as the times change.

According to a report by management consulting firm McKinsey & Company, large institutional investors are changing their business models and moving away from being strong market competitors by simply hiring the best talent in conjunction with lobbying for the most capital.

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Per the McKinsey & Company report, “35 to 40 percent of the differences in performance between one fund and another, are attributable to asset-allocation decisions. What our research revealed as new, however, is that traditional approaches to asset allocation are now seen to be inadequate, and CIOs and CEOs are increasingly willing to rethink these approaches and their process.” In essence, in order for an institutional investment firm to differentiate itself from the crowd, it will take a new approach.

The individual investor is not precluded from the need for evolution as well. In extended bull markets, one can fall into a trap of instant gratification when it comes to investing his or her capital.

According to Marina Gross, Executive Vice President of the portfolio research and consulting group Natixis, it’s important for an investor to stay disciplined and play the long game in terms of seeking profitability.

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