Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Investor sentiment dips on Asian concerns
(Pictured: Ken Froot)
The global investor sentiment index has dipped again with Asian investors adopting a new pessimism in July. The State Street Investor Confidence Index slipped from 107.7 to 105.1, but State Street says that, given the turbulence in some markets, investors have broadly maintained their stance on risk.
Asian confidence fell from 100.6 to 93.0, European confidence from 105.3 to 97.1 and North American confidence from 114.0 to 112.5.
The index was developed by State Street Associates, the research arm of the funds manager and securities services firm. Ken Froot, a Harvard professor of business administration who works with State Street Associates, said: “Notwithstanding the turbulence in markets witnessed this month, especially in some emerging markets, institutional investors have broadly maintained their stance on risk, with only a modest pull-back seen in the Global Index.
“The consensus is certainly that monetary authorities in the US will shortly begin to cut back on the monetary stimulus that has been in place for some time now, but there is recognition that this will only occur in response to improved US fundamentals. Certainly, the recently-announced policy that short-term interest rates will be tied to the rate of unemployment lends support to this view.”
State Street observed that outside of North America, there was some renewed caution in July, especially in Asia. The pressure exerted on the currencies of large current-account deficit countries – notably Brazil and India – has put a dent in confidence, the researchers said.
“We do note, however, that while investors have been quick to sell emerging markets bonds, there is no evidence yet that their appetite for emerging markets equities is waning, and indeed a portion of the cash released by fixed income sales has been recycled into equities. We also note that flows to countries less exposed on the current account deficit side, such as China and South Korea, have been relatively strong.”
