1. Asset Allocation
Portfolio Management

2. What is Asset Allocation (AA)?
Asset allocation is the practice of diversifying the portfolio between different asset classes and / or products.
Each asset class reflects peculiar characteristics, risk-return profile not being shared by others.
Asset allocation can be decided to …
Achieve some objective
Match investor’s profile

3. Asset Allocation idea/ need –
The performance of assets may vary from year to year and is not easily predictable.
Mixture of assets is more likely to meet the goals.
Fundamental idea: different asset classes offering non-correlated returns (or inversely correlated) can be pooled together in a portfolio for diversification …
Good Asset Allocation would reduce risks and variability of expected returns.
Asset Allocation becomes ineffective if done within similar or correlated asset classes.

4. How to decide Asset Allocation?
Asset Allocation depends upon the return that an investor is looking at….
If your Investor is targeting a return of 10 % what you will Suggest? I will suggest him an Asset Allocation –
7.5%
10%
2.5%
15 %
Equity 50%
5 %
Debt 50%

5. Asset Allocation – Benefits
Asset allocation is the primary/ main determinant of long-term portfolio performance rather than superior product selection or market timing
Asset allocation is a key factor in determining the success of an investment strategy. According to a widely recognized financial study by Brinson, Singer & Beebower, published in the Financial Analyst's Journal in 1995, asset allocation can account for up to 93.6% of portfolio performance.

6. Focus on Asset Allocation
Impact on Return in Long Term
Size Timing
Sector Selection
Stock Selection
Style Timing
Market Timing
Probability of Success

7. Asset Classes Broad Classes Equities Equities Real Estate Bonds
FIS / Mortgages
Cash
Gold
Growth
Income
Preservation
Equities
Large Cap
Small Cap
Mid Cap
Growth
Blend
Value
Domestic
International
Market Cap
Style
Origin

8. Asset Allocation => Risk Profile
Asset Allocation as per Profile *
Equity
Debt
Cash
Aggressive
75%
20% 5%
Moderate
55%
40%
Cautious
35%
60%
Conservative
* For Illustrative purpose only.