In short, cryptocurrencies such as Bitcoin or Ethereum are digital or virtual currencies that use cryptography for security and operate on decentralized networks. These networks are normally based on a digital ledger technology, the so-called blockchain. Unlike traditional currencies (fiat money) which are issued by governments, cryptocurrencies have so far been launched by corporations or people. They are typically decentralized and rely on peer-to-peer networks for transactions and their validation. This mechanism helps make them resistant to fraud, central control, or interference. Despite these protection mechanisms, investors have witnessed that not all cryptocurrencies were resistant against fraud in the past.

Since the weightings of the constituents of a portfolio are constantly changing due to the fluctuation of prices in the securities markets, investors have to ensure that the weightings of the single asset types and classes (the asset mix) stays in line with their risk bearing capacity (risk tolerance) and the respective guidelines of their portfolio. The process of realigning the portfolio with the guidelines or benchmark of a portfolio is called rebalancing. That said, rebalancing is a simple and well-known technique to help the investor to stick to his investment plan by regularly aligning the constituents of a portfolio

Strategic asset allocation (SAA) defines the long-term average positioning of a portfolio with regard to the different asset types (for example 60% equities + 40% bonds) and sometimes also with regard to the different asset classes (for example 5% of the portfolio can be held in below investment grade bonds). Conversely, tactical asset allocation (TAA) defines the short- or medium-term exposure to the asset types and classes based on the market assessment and the derived return expectations for the different asset classes by the portfolio manager. With regard to this, the TAA can lead to over- or underweights of regions,

When it comes to the basic rules on how to create a portfolio for an investor, the strategic (long-term) asset allocation (SAA) is the most important part. This is because the SAA determines the risk/return profile of the portfolio over the long run and needs, therefore, to be aligned with the risk-bearing capacity of the investor. (Please see the article: “What is investment risk” for more details on this topic) Since this alignment is superordinated to the whole portfolio construction and monitoring process, the evaluation of the risk-bearing capacity is the first step when tailoring a portfolio for a specific

Some investors may get confused in investment conversations about portfolios which contain more than one asset type (bonds, cash, commodities, equities, precious metals, etc.) because some refer to such a portfolio as a mixed-assets portfolio while others call the same portfolio a multi-asset portfolio. So, what is the difference between these two fund types? Generally speaking, mixed-assets funds have a long history as one-stop asset allocation products for all investors since these funds invest in a given mixture of bonds and equities (in some cases these funds also have a small bucket for gold). That said, the classic conservative (up

The bond market remains confused about interest rates, which is why it continues to generate such unusual levels of volatility. One possible explanation for this ongoing uncertainty is that there is a fundamental difference of opinion between bond traders who have only experienced abnormal bond market conditions since 2008, and those who are, let’s say, long in the tooth. During the first half of 2023, the US 10 year nominal bond yield averaged just 3.63%, with the 30 year benchmark at 3.78%. The market appeared to be indicating that inflation would quickly fall back to 2% and that nominal demand

The pattern of UK share ownership has changed significantly over the years. Until the early 1960s, UK individuals owned more than half the UK stock market. Three decades later, pension and insurance funds held the overwhelming majority. For more than a decade, foreign investors have owned most of the UK market. Given the international nature of the UK-listed large caps—81.2% of the sales of which were ex-UK in September 2022, up from 71.2% in September 2014—that’s not particularly surprising. (Though what is perhaps surprising is that the FTSE 250 has headed the opposite direction: from 62.8% to 56.2% global sales

Investors often fail to distinguish between uncertainty and risk. This is partly because there is an army of strategists advising investors how to manage risk through market narratives. These narratives attempt to explain away the complexity of the world we live in, giving the impression that uncertainty can be managed. Although listening to stories is fun and can make us feel confident about the future, investors need to embrace uncertainty to generate robust returns rather than listening to those who attempt to explain it away. A perfect example of this has been the liability driven investment (LDI) approach taken by

Making the right asset allocation decision is critical if pension funds are to generate sufficient returns to meet their liabilities. A recent analysis by GlobalSWF indicates that US public pension funds are only 75% funded and face a $1.3 trillion shortfall. Other public pension plans, such as the Universities Superannuation Scheme (USS) in the UK, are also suffering shortfalls. Figures from the latter’s last annual report indicates it is only 84% funded. This shortfall has created a challenge for USS, which subsequently presented scenarios requiring an increase in employee/employer contributions from just over 30% to between 42% and 56%. This

There are textbook ways for investors to beat inflation. Unfortunately, we do not live in a textbook world. Inflation chatter is always a thing, but the shocks are now coming thick and fast. Decades of globalisation had muted inflation, and the last time the Consumer Price Index (CPI) topped 5% was just over a decade ago. Whether because of increased demand—the unfettering of post-COVID consumer spending—or supply side constraints such as too few lorry drivers or too little gas storage capacity, inflation is back on the agenda. The Bank of England has increased its inflation forecast to more than 4%

The American economist Paul Samuelson once remarked that investing should be more like watching paint dry. If you want excitement, he noted, take $800 and go to Las Vegas. Samuelson’s comment in many respects strikes at the heart of the asset allocation versus stock selection debate. It’s all in the allocation Brinson et al’s 1986 paper on asset allocation stated that just over 90% of the variance in investment performance based on a fixed asset allocation portfolio was explained by boring old asset allocation, with only 10% arising from the excitement of market timing and stock selection. That 90% of

Getting asset allocation right is critical if pension funds are to generate sufficient returns to meet their liabilities.