How-To


Portfolio Optimisation

Optimised How-To Request:

  • Bob wants to invest in a risk 5 strategy over 10 years

  • He has UK Equity, US Equity and Cash funds available to him, but he doesn't know how much he should invest in each fund.

{
    "optimisedFunds": [
        {
            "code": "Returns_File_UK_Equity"
        },
        {
            "code": "Returns_File_US_Equity"
        },
        {
            "code": "Returns_File_Cash"
        }
    ],
    "targetOptions": {
        "term": 10,
        "funds": [
            {
               "code": "risk5",
               "riskGroup": 10,
               "contributionPercentage": 100
            }
        ]
    }
}

Optimised How-To Response:

  • In order to be as close as possible to achieving a risk 5 profile over 10 years, Bob should invest his money in line with 58.8% cash, 22.4% UK equity and 18.8% US equity
  • Bob's target and optimised volatilities are extremely similar and we are therefore able to tell that Bob can achieve his target using the funds he has available
{
    "assetAllocation": [
        {
            "code": "Returns_File_Cash",
            "name": "Cash",
            "contributionPercentage": 58.809999999999995
        },
        {
            "code": "Returns_File_UK_Equity",
            "name": "UK equity",
            "contributionPercentage": 22.439999999999998
        },
        {
            "code": "Returns_File_US_Equity",
            "name": "Overseas equity",
            "contributionPercentage": 18.75
        }
    ],
    "fundAllocation": [
        {
            "code": "Returns_File_UK_Equity",
            "name": "UK equity",
            "contributionPercentage": 22.439999999999998
        },
        {
            "code": "Returns_File_US_Equity",
            "name": "Overseas equity",
            "contributionPercentage": 18.75
        },
        {
            "code": "Returns_File_Cash",
            "name": "Cash",
            "contributionPercentage": 58.809999999999995
        }
    ],
    "targetVolatility": 0.24866777658462524,
    "optimisedVolatility": 0.2486662843537884
}

Unoptimised How-To Request:

  • Bob wants to invest in a risk 3 strategy over 15 years
  • He has UK Equity and Property funds available to him, but he doesn't know how much he should invest in each fund.
{
    "optimisedFunds": [
        {
            "code": "Returns_File_UK_Equity"
        },
        {
            "code": "Returns_File_Property"
        }
    ],
    "targetOptions": {
        "term": 15,
        "funds": [
            {
              "code": "risk3",
              "riskGroup": 5,
              "contributionPercentage": 100
          }
        ]
    }
}

Unoptimised How-To Response:

  • In order to be as close as possible to achieving a risk 3 profile over 15 years, Bob should invest his money in line with 56% property and 44% UK equity.
  • Bob's optimised volatility is significantly higher than his targeted volatility, implying that his optimised fund is a higher risk than he targeted. By including a lower risk fund he may be able to improve his optimised portfolio.
{
    "assetAllocation": [
        {
            "code": "Returns_File_Property",
            "name": "Property",
            "contributionPercentage": 55.96
        },
        {
            "code": "Returns_File_UK_Equity",
            "name": "UK equity",
            "contributionPercentage": 44.04
        }
    ],
    "fundAllocation": [
        {
            "code": "Returns_File_UK_Equity",
            "name": "UK equity",
            "contributionPercentage": 44.04
        },
        {
            "code": "Returns_File_Property",
            "name": "Property",
            "contributionPercentage": 55.96
        }
    ],
    "targetVolatility": 0.41763246059417725,
    "optimisedVolatility": 0.4911515322485676
}