http://wealthmanagementhongkong.com/ Investment Strategy has moved from focusing on INVESTMENT RETURNS to focusing on INVESTMENT RISK. Welcome to the world of “Dynamic Asset Allocation” Gary Williams Asset Investment Management Hong Kong

2. Dynamic Asset Allocation
• Asset Management
• Investment Management
• Portfolio Construction

3. Investment Strategy has moved from
focusing on INVESTMENT RETURNS
to focusing on INVESTMENT RISK.
Welcome to the world of
“Dynamic Asset Allocation”
Gary Williams

4. Introduction
Section A: History
Section B: Investment Philosophy and Process for Dynamic
Asset Allocation
 Dynamic Asset Allocation
 Fund Selection
 Portfolio Construction

5. Section A History: key influences
Date Influence Nature of the influence Area of impact
Diversification; efficient frontiers Diversification and risk
1952 Harry Markowitz
and modern portfolio thinking management
Professor Brinson The factors influencing portfolio
1991 Asset allocation
(and others) performance over time
The psychological influence on
2002 Daniel Kahneman Investor attitude to risk
investment decisions

6. Section A History: Markowitz
Modern Portfolio Theory
• Investors’ requirements revolve around obtaining reasonable
investment returns without excessive volatility (Risk).
• It’s not about getting high returns!
• It’s all about blending different asset classes to produce
average to good results at a lower risk (Volatility).
• Investment Strategy has moved from focusing on RETURNS to
focusing on RISK

7. Section A History: Brinson
Asset allocation constitutes the most important step in portfolio
construction, accounting for more than 90% of the variability in
portfolio performance over time1
1 G.P. Brinson, B.D.Singer, G.L. Bebower, “Determinants of Portfolio Performance II: An Update”, Financial Analyst Journal, May-June 1991.

8. Section A History: Kahneman
The 2002 Nobel prize for Economics¹ winner Daniel Kahneman
states that individuals are more depressed with losses than they
are satisfied with equivalent returns.
¹ The Sveriges Riksbank Prize in Economic Science

9. Section B: Philosophy and
Process for Dynamic Asset Allocation
The investment philosophy is built on three core capabilities:
 Dynamic Asset Allocation
 Fund Selection – best of breed fund solutions
 Portfolio Construction

10. Section B:
Dynamic Asset Allocation
 Different asset classes such as equities, bonds and cash have different
performance characteristics meaning that they respond differently to
changing economic scenarios. These differences create a need for
complementary asset allocation combinations with appropriate risk and
return profiles.
 The portfolio manager’s skill is in altering asset weights tactically in
order to create combinations of asset classes that can produce differing
risk and return outcomes. The Harmony Portfolios have strategic (long-
term) asset allocations that are reflective of the different benefits of
these asset classes.
 By tilting a portfolio’s exposure between different asset classes at
different times there is value to be earned: this is the premise behind
tactical asset allocation.

11. Section B:
Dynamic Asset Allocation
Source: Momentum Global Investment Management Limited - January 2011

12. Section B:
Dynamic Asset Allocation
Risk & Return Modelling

13. Section B:
Dynamic Asset Allocation
Performance Benchmarks:
An appropriate benchmark for each of the portfolios tells
us as much about the return expectations of the typical
investor in the portfolio, as it does about their appetite
for risk.
It allows us to continuously compare and contrast the
investment manager’s performance.
Asset Allocation Benchmarks:
It includes a 20% global exposure to complement the 80%
exposure to specific geographically / Currency focused
asset classes.
Expanding the benchmark’s asset class set is strategic asset
allocation.

14. Section B:
Dynamicclasses are rescaled to be consistent with
Historical returns for asset
Asset Allocation
expectations for the future. This allows the distribution to maintain the same
shape (same number of outliers, etc) with the mean return adjusted.
Source: Momentum Global Investment Management, Lipper, Historic figures are % p.a. January 2000 – December 2010.
Indices used for historic returns: Credit Suisse Tremont Multi Strategy Hedge Fund, FTSE EPRA/NAREIT Global Property, JPMorgan Global Bonds, JPMorgan US Bonds, LIBOR USD
3m, MSCI World, S&P 500, Credit Suisse High Yield Bonds. Past performance is not indicative of future returns.

15. Section B: Fund Selection
Funds / Managers Selection
Active investment approaches reward investors across
inefficient asset classes (e.g. US small cap equity). Passive
investment styles (e.g. index tracking) may be appropriate in
efficient markets such as US Treasuries.
Specialists create pockets of excellence in their key areas of
focus.
No single fund manager can create a monopoly of quality
across the spectrum of products on offer and the ability to
invest with different specialists across the world is essential.
It is therefore congruent to seek out Independent Financial
Advice.

16. Section B: Fund Selection
Asset Class Research
Where active management works.
Percentage of fund managers who underperform various performance hurdles
Index +1% +2% +4%
Efficient
Domestic Bonds* 84
Efficient
Global Bonds 66 77
UK Equities 67 77
US Equities 65 71 75
Semi-Efficient
Global Equities 69 75 81
European Equities 53 66 75
EM Equity 59 67 73
Japanese Equity 48 57 65 75
Inefficient
Small Cap* 49 54 59 67
Inefficient

17. Section B: Fund Selection
Manager research and selection
 Assets under management
Asset class screening / initial research  Investment style
 High alpha
Quant analysis  Returns based style analysis
 Risk/attribution analysis
 Philosophy
Due diligence  Process
Re-evaluation of  People
existing  Evidence
managers
Selection  Check consistency through
time
 Ongoing monitoring

18. Section B: Fund Selection
Using the best talent from around the world
London:
Chicago: M&G
Driehaus RWC
Timpani Schroders Tokyo:
Threadneedle Tiburon
Paris:
Comgest
Connecticut:
San Francisco: Lapides
Artisan AXA IM
New York:
American Century
Arizona: Pzena
ING Muzinich
Wilmington:
Marvin &
Palmer
Sydney:
Aberdeen

19. Section B: Portfolio Construction
Core & Satellite Strategy

20. Section B: Portfolio Construction
BRICS
commodities
The Core
Alternatives
Asset Allocation

21. Section B: Portfolio Construction
Dynamic Asset Allocation over time
100% Cash Cash
Cash 1.0% 4.0%
8.0% Commodities Cash Cash Cash
Cash 12.0% 12.0% Cash
12.0% Property Cash 13.5%
15.0% 15.0%
90% 11.0% 17.2%
Property
11.0%
Property Property Property
Property Alt. Investments Property
9.0% 4.0% 9.7% Property
6.0% 9.5%
80% 14.0% Property
Alt. Investments 10.0%
8.6%
Alt. Investments 2.5%
3.9%
Alt. Investments Alt. Investments Alt. Investments
70% Alt. Investments
16.0% Alt. Investments 6.0% 6.9%
24.0% 25.0%
60% Fixed Income
34.7%
Fixed Income
48.0% Fixed Income Fixed Income
40.0% 45.0%
50%
Fixed Income Fixed Income
42.0% 41.5%
Fixed Income Fixed Income
40% 31.0% 41.0% Fixed Income
34.0%
30%
Equity
20% 41.2%
Equity
Equity Equity
33.1%
Equity Equity 31.0% Equity 30.0%
26.0% Equity Equity 26.0% 25.7%
10% 21.0% 22.0%
0%
Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 May-11 Benchmark

22. Dynamic Asset Allocation
• Controlling Risk
• Controlling Volatility
• Controlling investment returns
• Looking to explore how Dynamic Asset
Allocation can benefit your investments
• Then please contact us, we look forward to
talking with you soon