Rethinking asset allocation: Why measuring impact remains a challenge
A Fenwick Media panel of experts explores how the emphasis on stock picking can overlook the biggest driver of outcomes, namely control over asset allocation.
At the recent Fund Finder South Africa event hosted by Fenwick Media just outside of Cape Town, leading investment professionals argued that asset allocation is often driven more by conviction than by evidence.
This discussion naturally led to questions about how conviction impacts measurable outcomes.
Asset allocation is widely considered the main driver of long-term investment returns, yet measuring its impact remains challenging.
Patrick Cairns, the founder of InvestConnect, chaired the discussion on ‘The big asset allocation questions’. He was joined by Symmetry chief investment officer (CIO) Roland Gräbe; Philip Bradford, CIO of PortfolioMetrix Asset Management; Sean Neethling, head of investments at Morningstar Investment Management South Africa; and Gyongyi King, CIO for retail investments at Alexforbes Investments.
At the heart of the debate about asset allocation was a simple but powerful idea.
‘Whoever does the asset allocation controls the risk,’ said Gräbe.
He emphasised that delegating this responsibility comes with consequences.
‘You want to find out whether they [asset managers] are good at [performing this function]. To measure that, you need an asset allocation benchmark.’
Control, not stock picking, drives outcomes
For decades, stock picking has dominated the asset management industry, with the search for alpha focused on the right shares. The panel argued this emphasis overlooks the main driver of outcomes: control over asset allocation.
Gräbe explained why control over asset allocation is so critical: ‘The reason we want to be in control of explicitly the asset allocation is so that we can determine appropriate risk.’
Asset allocation shapes not only returns but also a portfolio’s journey, influencing volatility, drawdown, and long-term trajectory. Despite this, many investors outsource this decision without fully understanding the implications, echoing the panel’s debate over control.
‘When you let somebody else allocate, or when you let multiple people do the asset allocation, you’ll always be behind them,’ Gräbe warned. ‘They will be moving asset allocation, and so you won’t have control. In fact, it will be difficult for you even to track what your exposures are.’
Are balanced funds meeting investor expectations?
South Africa’s long-standing reliance on balanced funds was a topic of discussion.
Bradford indicated that some balanced managers may fall short in asset allocation.
‘They were more stock pickers,’ he said.
This bottom-up approach can distort outcomes. Managers may cluster funds into similar opportunities or avoid certain asset classes, creating gaps.
‘You ended up with dead spots in your asset allocation,’ Bradford said.
Blending multiple balanced funds can compound the problem. According to Bradford, the outcome is often ‘an expensive and wonky kind of portfolio , a bit like a Frankenstein’smonster’.
Knowing your clients
Investment managers often treat asset allocation as a technical matter, but the panel stressed that it's about meeting client needs.
Neethling highlighted the advantage of being close to clients: ‘Because we interact more directly with the end client, we are more easily able to map towards their goals.’
King reinforced this point, noting that asset allocation is central to delivering the outcomes clients require.
Bradford added that managing portfolios for high-net-worth individuals introduces further complexity. Investors have varying time horizons, multiple objectives, different tax considerations and cross-jurisdictional requirements.
‘Your asset allocation needs to be tailored to that, and it’s not going to come from an off-the-shelf product from a traditional asset manager,’ he said.
This discussion raises a critical question for investors: who should be responsible for asset allocation in an increasingly complex investment landscape? The panel echoed this as a recurring theme.
Specialisation is vital
Bradford pointed to a structural reality within the industry.
‘What is the chance, statistically, of one manager … being the best at SA equities, the best at global equities, the best at fixed income … and the best at blending them all in the way you want? That gets close to zero statistically.’
This has driven greater specialisation across asset classes and strategies. However, it also introduces new risks, particularly if investment professionals make asset allocation decisions without sufficient expertise.
‘The recipe at the end of the day is what is going to drive your outcome. Bad ingredients can mess it up. But a bad recipe with good ingredients is not going to work either,’ Bradford said.
Measurement is key
If one issue drew particular attention, it was the challenge of measuring asset allocation decisions effectively—a challenge that connects to experts’ earlier concerns about control and responsibility.
At the centre of this is strategic asset allocation (SAA), the long-term benchmark that anchors a portfolio.
‘SAA is probably the most important piece,’ said Neethling, noting that it explains ‘more than 90% of the variability of returns over time’.
Despite its importance, many managers either do not define an SAA or fail to use it as a decision-making benchmark.
Gräbe was unequivocal: ‘I chat to a lot of active managers … and many of them don’t have an SAA at all. In fact, they seem confused when I ask.’
This, he argued, is a flaw.
‘If they’re not attributing their own decisions, then they have no idea whether that is value adding,’ he said.
He added that he would not outsource asset allocation to any manager unable to demonstrate this capability.
‘A big red flag for me is when they did not show what that SAA benchmark is.’
King also stressed that measurement is crucial when explaining outcomes to clients and that investment decisions without data are subjective.
‘As you get into asset classes that are less familiar, you need to do that extra layer of due diligence so that you understand exactly what the manager is doing,’ King added.
‘It’s critical to measure the effectiveness of an SAA so that you can explain to your clients what has driven performance and value,’ she said.
Alternative investments
The panel also discussed alternative investments. Cairns noted that South African investment portfolios had much less exposure to alternatives than international portfolios.
King said the low local exposure to alternatives was due to limited access to the asset class, complexity and the fact that South African equities had offered investors strong returns.
She said that accessing local private markets puts investors in touch with companies that cannot be reached in the listed space, and so private markets offer a ‘completely different risk, return’ profile.
King said the private equity market is a tricky, complex environment, and in South Africa, the sector had ‘not been great’ due to the economic environment.
Bradford said he had a terrible experience in the South African private equity sector.
‘In the private debt space right now, the assets are incredibly expensive and overvalued.’
He added that the unlisted sector was a ‘very unprotected world’ and ‘difficult space’.
Bradford said private markets sound ‘sexy’, but investors are taking a lot more risk.
He added that operating in private markets also required people to have a ‘team of lawyers’.
‘When things go wrong, you need an army of them to get your money back,’ Bradford said.
The bottom line
If asset allocation is the foundation for long-term returns, key takeaways from the panel include the need for more robust measurement, clearer accountability for decisions, and a focus on how control over allocation directly shapes investment outcomes.
The panel concluded that successful investing requires not just selecting assets, but building a disciplined, well-structured portfolio. Transparency about the key drivers of return and risk is essential for clients to understand performance.
The overarching message: the industry must close the measurement gap so asset managers can make informed, effective decisions about asset allocation, benefiting both investors and the broader market.