Asset Allocation

Asset Allocation

While most professional investment advisors agree that asset allocation policy is the primary determinant of portfolio return, the implementation of this concept varies widely in practice.  Asset allocation policy requires investment and finance committee and board members to answer a few key questions:

1. What is our organization’s investment objective?
2. In which asset classes should we invest?
3. What is the appropriate number of asset classes to include in our organization’s portfolio?
4. What percentage of our portfolio should be allocated to each asset class?
5. If our organization has multiple types of constituents, donors and/or other beneficiaries with different objectives, should we have multiple portfolios?

Once asset classes are selected and specific allocation targets are set, there are differences of opinion on whether or not a tactical overlay should be utilized.  An organization and/or consultant that applies a tactical overlay adjusts their targets periodically to reflect short-term or intermediate-term projections of economic activity or market behavior.  Alternatively, a “strategic approach” may be pursued in which asset allocation targets are set and not adjusted for short-term or intermediate-term market considerations.  At Mason, we apply this type of strategic approach to asset allocation.  In addition, in order to maintain a specific asset allocation strategy, Mason implements a disciplined rebalancing policy.