The strategic asset allocation (SAA) represents our long-term view of an efficient asset mix for each portfolio. The Investment Advisory Committee (IAC) monitor how the portfolios are delivering against their risk objectives every quarter, as well as carrying out a formal review every three years.
The formal review ensures that portfolios remain appropriate for their long-term objectives which are designed to optimise returns within their risk framework.
Each portfolio has real return objectives and are designed around a risk target framework where risk metrics are based on the objective of each portfolio.
The objective of the review is to improve long-term outcomes for your clients. The IAC review expected risk, return and correlations for each asset class in order to identify the most efficient mix going forward for the longer term.
The long-term expected return, volatility and correlation assumptions we use are based on Moody’s Analytics capital market assumptions which are then overlaid with a Royal London house view.
Each asset class has a set of assumptions that reflect our expectations of risk, return and how they move in relation to one another. These assumptions determine the risk return trade-off for each asset class.
The next stage of the process is to review and test the current SAAs against hundreds of potential other combinations of portfolios over thousands of different future scenarios working with the assumptions Moody's Analytics have provided.
This helps us identify which asset allocation offers the best potential performance for the level of risk taken in each portfolio and the best risk return trade-off.