Evaluating Multi-Asset Strategies

Abstract

An increasing number of investors are recognizing the many benefits of a multi-asset approach, including the potential for improved diversity, greater liquidity, and reduced volatility. Also advantageous is their ability to fit readily alongside a variety of investment approaches and asset class categories. That said, multi-asset strategies come with challenges. This article addresses a particularly problematic area—how to evaluate multi-asset strategy outcomes. Relying on only one or two measures for evaluation can lead to misinterpretation of the historical investment results achieved. Instead, the author advises using a variety of evaluation techniques. One of these—correlation—is discussed in depth, because the author believes it is misunderstood in many dimensions of multi-asset investing. The author also examines some of the more useful performance and risk analytics, both historical and predictive, that can help to understand what drives multi-asset investment outcomes.

TOPIC: Portfolio construction