The challenge

How can I most efficiently lower the costs of my portfolio?

Regulatory pressures and continuing low yields have increased pressure on pension funds and insurers alike to manage fees and build cost-efficient solutions.

The action

BlackRock could help by assessing portfolio efficiency and identifying the main drivers of risk and returns.

Identifying where returns are largely driven from broad market exposures and static exposures to factors can help to ascertain where similar outcomes may be potentially replicable more cost-effectively through an index solution.

In this example, while the alpha-seeking manager generated excess returns, much of this was attributed to static factor tilts.

Manager return decomposition

Source: BlackRock, as at May 2020.
For illustrative purpose only.

Case studies are for illustrative purposes only; they are not meant as a guarantee of any future results or experience, and should not be interpreted as advice or a recommendation.

Risk: There can be no guarantee that the investment strategy can be successful and the value of investments may go down as well as up.

The outcome

The client opted to reduce reliance on alpha-seeking managers, instead intentionally targeting specific factors and index exposures through low-cost index solutions.

Why indexing?

Recognising that the manager outperformance was tied to static factor tilts, the client realised that they were potentially overpaying for returns.

By taking a more balanced allocation across index, factors and alpha-seeking managers, the client was able to maximise the efficiency of their risk and fee budgets.


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