Fund asset allocation is a multi-level system engineering. It is a complex process from the establishment of investment objectives and standards by the board of directors of the fund to the issuance of trading instructions by the investment manager, and every department must conduct research and decision-making.
In practice, there are generally three levels of fund asset allocation, which are policy asset allocation, strategic asset allocation and personal asset selection from top to bottom.
(1) Policy asset allocation. The core of policy asset allocation is the choice of investment target market, and the risk-return characteristics of this market should conform to the investment objectives of the fund. A fund's portfolio can include various assets, depending on the fund's objectives. Generally speaking, funds that pursue high returns and high risks include high-risk assets such as stocks and real estate in their portfolios; For pension funds that require stable income, only bond assets with low risk and stable income flow can be selected as investment targets. In addition to the choice of target market, the allocation of policy assets also determines the degree of diversification of fund assets and the degree of full investment of funds. The degree of asset diversification is measured by the number of asset types held by the fund and the proportion of fund assets in different assets. Generally, the lower requirements are decentralized to reduce the risk of the fund. The full investment degree of a fund refers to the proportion of non-cash assets. Generally speaking, open-end funds need 10% of cash assets as reserves. The more sufficient the investment, the higher the income, but in order to maintain a certain flexibility, it is beneficial to hold some cash assets.
(2) Strategic asset allocation. Strategic asset allocation refers to adjusting the proportion of various assets to obtain income by using the wrong pricing caused by temporary market imbalance within the investment principles and scope established by policy asset allocation. Strategic asset allocation decisions must conform to the general principles of policy allocation. If the strategic decision exceeds the authority, it will change the nature of the policy decision, make the fund's objectives and risk characteristics deviate, and violate the commitment to investors. For example, for a balanced fund, the policy target market and proportion are 50% for stocks and 50% for bonds. If the stock market rises by an average of 40% and the bond market is only 10% in a certain year, according to the conservative policy proportion, the fund's income is only 25%. If the manager makes an accurate judgment and invests 80% in the stock market and 20% in the bond market, then the fund income is 34%? Higher than the policy investment income. However, if the manager makes a mistake and puts 80% of the funds into the bond market and only 20% into the stock market, then the fund's income is only 16%. Therefore, strategic decision-making has great risks, and the principles and scope of policy decision-making can prevent and limit this risk. The key to strategic asset allocation decision-making is to identify investment opportunities that can make gains, that is, to find out the wrong pricing of assets in the market. Because the market is not completely efficient, incomplete information, economic cycle, investors' psychological factors and unequal utilization of investment opportunities may all lead to the overpricing or underpricing of some assets in a certain market, creating opportunities for strategic decision-making.
(3) Selection of individual assets. This is the third level of fund asset allocation, and it is also the most specific and operational level. Under the guidance of the principle of strategic asset allocation, it uses various information and models to evaluate the assets in the target market, analyzes the risks and benefits of specific assets, and looks for assets with investment value in order to achieve the ultimate goal of obtaining the maximum benefits.