- Investment Strategy Analyst
United States, Institutional
Change
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
Every New Year, most of us come up with a list of resolutions to improve our personal and professional habits for the better. While encompassing a range of familiar aspirations — from the perennial attempts to adopt a healthier lifestyle to starting a hobby or becoming a better investor — these resolutions share a common theme in that most won’t last the month, defeated by practical realities and our natural biases.
Sometimes, however, good intentions do stick. In most cases, the secret of success comes down to targeting incremental rather than wholesale change and ensuring that the desired change is aligned with already well-established good practices. While the resulting improvements may seem minimal, if maintained and built on in the following years, they can eventually deliver durable progress.
Here is my attempt at setting four such resolutions. While not that different from the familiar objectives, they are deliberately limited in scope to make them more achievable. I hope that, along with my colleague Adam Berger’s annual checklist, they offer food for thought in what could be a momentous year.
1) Focus more on the things that matter
We all know how, amid the media-amplified noise surrounding us, it is very easy to lose track of what really matters. Countering that tendency is hard, given our strong behavioural biases — whether it is fear of missing out or making judgements based on the most recent past. Personally, I am very lucky to be part of a team for whom focusing on clients’ long-term investment outcomes is part of its DNA, but I think there is still more that I can do. In practice, it means having the discipline to assess any asset allocation decision on its potential to move the needle in terms of outcomes. While it might be fun trying to predict the latest inflation print from the Bank of England or trading the relative value between South African and Portuguese equities, ultimately efforts in these areas need to be weighed up against their impact on risk and return.
Suggested steps:
- Set a strategic asset allocation that you can live with for the medium term — ultimately, it is asset class weights that most affect the likelihood of achieving long-term goals.
- Make sure that each allocation (whether to asset classes or strategies) has its own unique role in the portfolio — overlapping roles leads to duplicated efforts.
Related perspectives:
Balancing bumps in the road and big-picture thinking in 2025
2) Get out of your comfort zone
Another natural bias is to focus on familiarity, even if that is potentially to our own detriment. It's important to frequently reassess and challenge our long-standing beliefs and assumptions, both personally and professionally. This year, I think it is even more important to seek out different perspectives. Why do I say that? Because, superficially at least, there seems to be broad consensus about the likely direction of travel for 2025: bullish, with the US market outperforming. While there are good reasons to subscribe to this view and the continuation of US exceptionalism (as I do), consensus rarely gets it exactly right. 2023 was a good example of this. The vast majority of economists and strategists were forecasting a slowdown or recession, but neither materialised, and markets rallied.
Suggested steps:
- Be more deliberate in seeking opinions from experts with a different view on the outlook of the economy and markets — purposefully consuming views from those that agree with us does not prepare us for other outcomes.
- When forecasting, focus on a range of scenarios and probabilities, rather than only thinking about the most likely outcome.
Related perspectives:
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3) Stick to the budget
Good budgeting and planning make it much easier to find money for the things that really make a difference. If all the things we “need” are accounted for, it gives us more flexibility to spend on the things we “want”. Similarly, most investors may want to incorporate some active management but only have a limited “active budget” to work with. For this budget to be most cost effective, they need to focus it in areas where it is likely to yield the best outcomes. This year will be no different, meaning investors will need to consider carefully how much they want their active budget to be and how to use it. Answering these questions usually involves deciding to what extent you want the active management to come from leaning in and out of markets (active asset allocation) or from choosing between securities within those markets (security selection), with both likely to play an important role in 2025.
Suggested steps:
- Use a market-efficiency framework to help allocate active budget (security selection) to areas that are least efficient, which may yield the best chance of positive outcomes.
- Think about how active asset allocation can be used to complement security selection, particularly if the active budget is high.
- Consider the impact of combining different active strategies on the ability for the active budget to go further.
Related perspectives:
Concentrated markets: Implications for active management, manager research, and multi-manager capital allocation
4) Be more active
My final New Year’s resolution is to be more active. Not by radically changing my lifestyle, but rather by making small tweaks to my daily routine. Likewise, for investors, I think 2025 could be a year in which selectively leaning into strategies that are more active and dynamic could reap rewards. This view is linked to the macroeconomic environment: worries about higher inflation, the potential impact this has on higher rates and more active government involvement in economies all point to higher dispersion between countries around the world and more dispersion between companies and securities. This should be an ideal environment for dynamic managers to capitalise on.
Suggested steps:
- Consider incorporating more dynamic tilts into your asset allocation framework. Our monthly refreshed asset allocation views can help you in that process.
- Explore incorporating dynamic strategies such as hedge funds into your portfolio, which tend to thrive in a world of higher security and macro dispersion.
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