Hermes Investment Management risk adjusted returns to its clients – responsibly, has today published the paper Portfolio construction methodologies: Looking beyond the good, the bad and the ugly by Tommaso Mancuso, head of Hermes Multi Strategy.
The paper argues that when devising multi asset portfolios, no single methodology – risk parity, fixed weight or momentum – is wholly superior across market scenarios. Mancuso argues that as with any asset, the performance of different asset bundling methodologies depends on one or a few factors and is therefore subject to biases and cyclicality.
Tommaso Mancuso, head of Multi Asset, Hermes Investment Management says: “The one key attribute that we believe all asset bundling methodologies should share is simplicity. Simple approaches tend to be more robust over time while complex and optimised processes usually inexorably fade away. Perhaps more importantly, it is easier to stick with a simple process during turbulent times. At Hermes we see significant value in diversifying risk across different portfolio construction methodologies.”