Hence many investment managers start to rely on the risk-profiler to guide or evaluate their asset allocation to keep within the band. We can see how this would manage their business risk, perhaps.
But is it really sensible for a seasoned asset allocator to use a risk-profile provider to influence their asset allocation?
We also worry that the craft of differentiated active asset allocation gives way to a more standardised industry view, compatible with the asset allocation tramlines set by a handful of externals.
Volatility-managed strategies are fairly new, and many have been launched into markets that have seen historic lows of volatility.
For now, they appear to have worked well, but in strongly rising markets with the genuine test of a bear market still to come.
From these levels of heightened valuations (and related low volatility), investors need all the know-how and experience to navigate what looks likely to be a period of higher volatility in markets going forward.
Our hope is that volatility management is not synonymous with selling low and buying high and that asset allocation remains a genuine active craft, rather than an off-the-shelf homogenised service. Time will tell.
Rory Maguire is managing director of Fundhouse
