Identifies New Approaches to Managing Portfolio Risks
BOSTON--(BUSINESS WIRE)--
State Street Corporation (NYSE: STT), one of the world's leading
providers of financial services to institutional investors, today
released its latest Vision Focus report on new trends in asset
allocation following the financial crisis. Entitled “Rethinking Asset
Allocation,” the report examines the changing views of traditional
practices and identifies new techniques and investment strategies that
focus on measures of market turbulence, risk, liquidity and
diversification.
The market volatility over the course of 2007 - 2009 has challenged
long-held tenets of asset allocation, including investors’ reliance on
portfolio construction and risk models centered on average market
behavior and normal return distributions.
“The financial crisis exposed the need to understand the limitations of
traditional practices such as Modern Portfolio Theory, and heightened
the need for new approaches to strategic and tactical asset allocation,”
said Dan Farley, global head of the Multi-Asset Class Solutions group at
State Street Global Advisors. “Thanks to lessons learned from this
period, many investors have gained a more nuanced reminder of portfolio
risks centering on market volatility, portfolio construction and trading
liquidity.”
The credit-driven nature of the financial crisis made liquidity
management a critical new challenge. To better integrate liquidity
considerations into asset allocation decisions, investors should enhance
their allocation process with optimal rebalancing, the Vision Focus
report recommends.
Non-normal investment returns and dramatic swings in valuation may occur
more frequently in coming years, the report states. Consequently,
investors should give new consideration to within-horizon risk,
investment regimes and turbulence.
“Increasingly, investors are turning to regime-specific risk analysis to
form a more complete picture of portfolio risk,” said Will Kinlaw,
managing director and head of Portfolio and Risk Management Research at
State Street Global Markets. “The study of turbulence, a statistical
measure designed to identify periods of unusual financial returns, helps
us to understand how specific market segments react during turbulent and
non-turbulent times.”
As evidence of the rethinking now underway, the Vision Focus report
cites “new, emerging quantitative approaches aimed specifically at the
challenges of turbulent markets and the non-normal returns they
engender. The study of turbulence and unusual price movements, for
example, helps investors to understand market sentiment and construct
robust risk models.”
State Street’s Vision Series addresses key trends and developments
impacting the financial services industry. Previous reports have focused
on pensions, exchange-traded funds and sovereign wealth funds. To
download a copy of this Vision Focus report or others in State Street’s
Vision series of in-depth reports, please visit www.statestreet.com/vision.
About State Street
State Street Corporation (NYSE: STT) is the world's leading provider of
financial services to institutional investors including investment
servicing, investment management and investment research and trading.
With $19 trillion in assets under custody and administration and $1.8
trillion in assets under management at June 30, 2010, State Street
operates in 25 countries and more than 100 geographic markets worldwide.
For more information, visit State Street’s web site at www.statestreet.com.
CORP-0150
Source: State Street Corporation
Contact:
State Street Corporation
Marie McGehee, +1 617-664-1898
or
Alicia
Curran Sweeney, +1 617-664-3001