Produced by Bloomberg Media Studios in partnership with Standard Chartered.
Life is simple for retail investors when financial markets are stable. For decades, a prudent split of stocks and bonds was enough to ride out occasional blips and ensure long-term steady returns.
The last time that seemed possible is a rapidly receding memory. Over the past 12 months in particular, volatility and uncertainty held sway to the extent that even traditional safe havens no longer offered reliable refuge.
This kind of instability poses a particular challenge to retail investors. With work, family, and busy schedules to think about, few people are able to devote the time and attention required to stay on top of volatile markets. And when asset prices are moving quickly, the danger of making impulsive or panic-driven decisions multiplies.
The central tenet of most investment advice is diversification; maintaining and adjusting the balance of a portfolio to minimize risk and capture emerging opportunities. But with the kaleidoscope of investment options growing – multiple geographies, ESG, private markets, tokenized assets – the need for a structured, specialized, and methodical approach is more acute than ever.
The reality is that many retail investors struggle to filter market noise and stay consistently diversified, or to rebalance their portfolios when markets shift, particularly in an unsettled economic environment.
With these precise challenges in mind, Standard Chartered Wealth Management uses a three-step process to design, build, and manage its Signature CIO Funds to remove the noise and headache of portfolio management for clients.
Three Steps to Peace of Mind
1. Strategic Asset Allocation
Standard Chartered’s Chief Investment Office (CIO) uses a pure quantitative assessment of long-term trends to build an assumption of expected returns, and risk and correlation estimates.
During the current period of comparatively high inflation, for instance, the team analyses historical inflation data to gauge where we stand in the economic cycle, then calculate how different asset classes previously performed in the 12 months following that point.
This creates a “smart anchor” on which to form a perception of how things are expected to play out. This perception is then put through a series of rigorous tests.
2. Tactical Asset Allocation
First, these base expectations are weighed and analyzed by Standard Chartered’s Global Investment Committee in a process called the Three Ds:
- Diversity, where third-party views are curated from researchers, banks, and other asset managers.
- Debiasing, where questions, insights, and analysis are shared and debated to mitigate personal biases.
- Decision-Making, where, in order to eliminate biases, committee members are given time to reflect on the available information and vote anonymously on their asset-class preferences.
These are critical steps in the investment process, and they are founded on the knowledge that everybody has behavioral biases: hindsight bias, confirmation bias, hierarchical bias, familiarity bias, and so on. These biases can become entrenched within large institutions, which is why the CIO team at Standard Chartered has designed its investment process to filter biases and derive maximum benefit from the collective wisdom of a diverse group of experts.
So, when the Investment Committee arrives at a conviction, it is stronger than the conviction of any individual because it has taken into account more frameworks, information, and competing hypotheses than any individual can realistically process.
This approach enables decision-makers to scale up investments more than would usually be possible. In 2021, for example, Standard Chartered was overweight global equities by more than 10% for most of the year, which was a strong contributor to the 3% alpha for the year.
3. Fund & ETF Selection
Standard Chartered’s Fund Selection Team then deploys a methodology that’s been in place for more than a decade to choose best-in-class funds.
It begins with the universe of 110,000 funds. These are filtered based on Standard Chartered CIO’s “House” views of current investment trends. The selected funds are put through in-depth due diligence by portfolio managers, who evaluate them based on a proprietary framework focusing on People, Process, and Performance. This produces a high-conviction list of about 150 funds that are then subject to ongoing monitoring and review of criteria including cost, liquidity, and risk management.
The process has been in place for so long because it works. Across a three-year period through the end of 2021, 84% of Fund Select funds generated positive returns for clients, and 74% of funds were placed in the top two quartiles of their respective peer groups.
To strengthen this performance further, Standard Chartered partners with Amundi - Europe’s largest asset manager, which has been operating in Asia for more than half a century – to offer its Signature CIO Funds.
More than its impressive heritage, Amundi shares with Standard Chartered a common objective to help clients build long-term diversified portfolios by combining the best of our House and CIO views, and bringing them to largest possible number of clients in the most structured possible format.
Playing it SAFE
Applying structure is the most dependable way to make sense of uncertainty. All of the Signature CIO funds follow the same SAFE strategy developed by Standard Chartered to help clients navigate their portfolios in the still uncertain markets in 2023.
The four themes of the SAFE strategy are:
S = Securing yield.
A = Allocation to long-term value.
F = Fortifying against surprises.
E = Expanding beyond traditional assets.
As it suggests, the strategy have been framed to help investors stay defensive in the uncertain rate and inflation environment, identify long-term value in global assets, and broaden diversification to boost returns.
Last year was a bruising one for most investors, and as we move through 2023 the task of shoring up confidence and restoring faith in markets is complex and fraught with risk. By investing in the structured and proven process that underpins the Signature CIO funds, clients can filter out the noise and focus on the opportunities.
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