“Our selection process for our model portfolio, which has about 25 funds, is much more rigid than for our platform, which is mainly of a quantitative nature since it has hundreds of funds.” Viviani emphasises that it is vital to consider risk-return metrics of fixed income funds in relation to their composition.
“I analyse risk-return indicators and then compare the outcomes to the average credit quality, duration and yield- to-maturity of the fund.”
As far as equity funds are concerned, Viviani prioritises funds with low beta and limited drawdown for his defensive portfolios. These form the bulk of his equity investments, since a large majority of his clients have a conservative risk profile, with an average exposure of 80% to bonds.
For the minority who are comfortable with a higher level of risk and volatility, the importance of risk-related measures decreases, with outperformance versus the benchmark taking a more important place.
The question is just whether more of Viviani’s clients will start chasing higher returns and transform their heavy bond bias into a portfolio that is a little more future-proof.