Strategic asset allocation, or: How I learnt to stop worrying and love the dispersion

FOR decades, strategic asset allocation has been considered the driving force behind investment portfolio returns. But the old adage that allocation determines 90 per cent of performance is rapidly becoming outdated.

Over the course of 2020, we have seen how the world of investing is shifting from one in which declining interest rates drive beta performance, to one with increasing dispersion of returns within asset classes, regions, and sectors. This dispersion is amplified by retail investors who have greater access to the markets through supposedly zero-cost investment platforms.

Going forward, in an era of near-zero or rising interest rates, beta will play a secondary role in performance generation. Since early 2020, three phenomena are propelling the future of investing, pushing it towards more precision-oriented strategies.