Academic research suggests that the decision to allocate total assets among various asset classes will far outweight security selection and other decisions that impact portfolio performance.
Research has shown that the asset allocation will determine over 91.5% of the overall returns that are received from an investment.
To assist you to work to the highest confidence level, Axiome Consultants has drawn on the research of the international academic community. Asset class funds provide the building blocks to faithfully implement the strategy recommended. Massive diversification in terms of underlying securities within each asset class building block of the investment portfolio ensures the investor is rewarded with full market returns in each sector.
Portfolios will consist not only of exposure to the current large international companies, but will be broadened to include exposure to small company shares ('small cap') and the shares of growth companies i.e those with potential to grow based on low PE or Btm ratios ('value' companies). Research indicates that the 'small' and 'value' asset classes provide a higher rate of return over the long term than do the shares of large companies. Further, with an appropriate mix to these asset classes' volatility of returns can also be reduced.
Investors in disciplined pure asset class funds are not subject to style drift, because passive asset class funds buy and hold assets only relevant for the specific asset classes identified for the portfolio.
The allocation of investment funds across international markets may be based on relative market capitalisation weightings, or introduce an element of tilt toward the investor's local environment. This is acceptable in terms of the theoretical stance of behavioural economics which accommodates investor psychology. New Zealand investors that have adopted full market capitalisation based portfolios, have been exposed to greater exchange rate volatility in recent years than those with relative bias weighted toward Australasian markets as well as straight Global allocations. Selection depends on investor circumstances and objectives. In both instances volatility characteristcs are matched to each investors risk profile as closely as possible.