Asset Allocation and TAA

16 Ideas for Enhancing Portfolio Returns

Scan this list of ideas, then read the relevant white papers

Whatever your role, it's worth taking a step back from time to time and asking if there's something you could be doing differently.

Below we've compiled a list of 16 ideas, covering new asset classes, more efficient processes, or changes to philosophy. Click on each title to access the associated white paper or papers.

pit stop enhancing portfolio returns

Consider adding an allocation to preferred securities
Preferred securities lie between bonds and equities in the risk spectrum. This paper from Cohen & Steers explains how institutional investors can benefit from allocating to this asset class.

Move further out the risk curve by allocating to emerging market debt
This paper from LGIM argues that Emerging Market corporate bonds have "come of age" and are worthy of serious consideration as a new asset class for your portfolio.

Harness the volatility risk premium to control risk and increase returns
The volatility risk premium (VRP) is described by Eaton Vance as a "distinct, persistent and diversifying alternative return source".  This paper describers how the VRP can be captured using derivative strategies.

Add factor exposures to your active and passive allocations
Factor investing is one of the fastest growing themes in the investment industry. This paper from MSCI outlines how factor exposures can be added, either to passive, or to active allocations.

Explore securities lending to modestly enhance your returns with little risk
Many pension funds, and other long-term investors, employ securities lending to modestly increase their returns, without meaningfully increasing their risk. This paper from Vanguard provides details.

Consider private debt within your asset allocation
Private Debt is the counterpart to Private Equity. This paper from TIAA explores the asset class and helps investors to consider what they need to do to get started.

Identify where your firm can generate alpha - then leverage it with an overlay
What is that one thing you know you're good at? Focus on that, and do more of it! Perhaps use a derivatives overlay strategy to implement it.

Consider an allocation to listed infrastructure
An increasing number of funds are considering infrastructure as a new, alternative asset class. Listed infrastructure investments enable all funds, small and large, to share in this opportunity.

Explore buy-write strategies to generate additional income
Buy-write strategies enable investors to receive a certain, additional income, in exchange for placing a cap on their upside returns. See this paper from S&P Dow Jones Indices.

If you are consistently cash flow positive then invest in illiquid assets
Long-term investors, such as growing DB pension funds, are uniquely positioned to benefit from the higher returns associated with illiquid assets. This paper from Willis Towers Watson explains what you need to know about the illiquidity risk premium.

Appoint investment managers with genuine skill in generating alpha
How can you identify managers who are genuinely skilled? These papers will help you discern the attributes of great investors and filter the wheat from the chaff.

Switch your equity allocation from active to passive
Most studies suggest that, over the long-term, passively-managed funds are likely to outperform active. These papers explore the active versus passive conundrum.

Haggle with your fund managers to reduce investment management fees
Here is a selection of papers to equip you with the knowledge needed before discussing the level of fees you are currently paying. for savvy investors, knowledge is power!

Bring your trading and transaction costs under better control
How efficient is your execution of trades? Over the long-term, a couple of basis points per trade and can add up to a steady leakage of returns. This CFA paper covers what investment professionals need to know about trading and electronic markets.

Make an allocation to credit markets
For investors who currently invest only in government debt, credit markets allow you to move further out the risk curve. This guide from the PLSA is a useful primer, covering high yield bonds, bank loans, asset- and mortgage-backed securities, EM debt and more.

Take a genuinely long-term investment view
In recent years there has been increasing focus on what it means to adopt a genuinely long-term time horizon. Here is our list of the top papers on the subject.