Strategy at a Glance
Global allocation strategies can invest in any asset class, anywhere in the world, in pursuit of the following benefits:
- Potential for strong risk-adjusted returns
- Downside protection in challenging markets
- A diversifying component to an investment portfolio
A global allocation strategy pursues opportunities anywhere in the global markets, using any asset class the managers deem appropriate. The approach starts with high-level analyses of global economic, geopolitical and market factors to find circumstances that can cause investments to be overvalued or undervalued. Managers then use bottom-up analysis to identify investment positions that can best take advantage of those mis-pricings – including both long and short equity, traditional fixed income and alternative credit, and currency or commodity-linked instruments. The goal is to improve risk-adjusted returns over investment vehicles that are limited to specific investment classes, styles or regions.
Growth potential in any economic environment: The flexibility of a global allocation strategy allows managers to move in and out of markets and asset classes as needed to adjust to market conditions. However, these movements may expose investors to currency volatility, political instability, or other underlying risks of foreign markets.
Downside protection: As with any stock market investment, Global allocation strategies can be volatile. But Global allocation managers can take defensive positions, such as reducing equity exposure, holding cash or even shorting, to preserve capital in broad market downturns.
Diversification: Because global allocation managers seek mispriced assets and market anomalies that are not being exploited by traditional investors, the strategy typically has low correlation with other asset classes.
- Effective execution of a global allocation requires a team with global coverage and deep experience in all asset classes.
- Global allocation funds can become less effective as the size of the fund increases. Smaller, nimbler funds often can respond to market shifts more quickly, and can take larger positions in high-conviction investments to enhance returns.
SUGGESTED GRAPHIC: CHART SHOWING DECLINING ALPHA OF LARGEST GLOBAL ALLOCATION FUNDS (SEE “GTAA CROSSOVER AND CORRELATION” PDF ON WEBSITE.)