Invesco Podcasts

Chris, welcome back episode 4 of Investments Unlocked.

How do you feel survive in advance.

Excellent.

Well, look, today we're going to talk about something that's the bread and butter of what we do day-to-day or at least what you do in the solutions business and that's model portfolios.

So would you mind just kicking off for us and what our model portfolio is, who uses them and why are they using them?

Great question.

So a model portfolio is simply a new way to deliver a classic idea and what we define.

Model portfolios are basically multi asset solutions that are delivered in a more flexible customizable way for end users that can be wealth clients as well as certain types of institutional clients.

And this is really where a lot of the growth in our multi asset solutions complex is coming from.

Clients see the flexibility of multi asset portfolios.

They see it as a way to leverage our asset allocation IP (Intellectual Property) as well as some of our innovative building blocks as a firm to build these types of solutions which can really serve as core elements of their investment platform.

Yeah, fantastic.

And you mentioned really popular with wealth clients and, we saw that, I saw that in Australia a little while back.

We see in the states as well and a little bit in Europe.

And in particular in the wealth segment, like you said, increasingly feels like institutional segments are starting to adopt portfolios to navigate markets and focus on things that might be a little bit better at.

So for example, family offices who have a range of duties to solve for their clients that aren't necessarily purely focused on investments, in which case it sounds like model portfolios make a lot of sense as well.

So, well, do you have any comments on that?

I mean, you know, I know you're speaking with a lot of family officers with myself.

So what do you think about that?

Sure.

So I think we see model portfolios as a tool to help, whether it be financial advisors or executives at family offices or even certain types of institutions to help them focus on what they're best at.

And if you think about your traditional financial advisor, they're really kind of core role is to run and operate a financial advisory business, meeting with clients, planning for clients, raising assets.

And they're leveraging us for that core asset allocation service that really serves as a bedrock of their investment platform and gives them the bandwidth and leeway to focus on other activities.

As you noted, we're starting to move kind of up market with that particular solution, family offices.

And like you mentioned family offices have a lot of different hats that they have to wear.

They have to focus on public markets, focus on private markets, engaging and servicing the principles of the family office, maybe focus on accounting and wealth planning type issues.

It's a very holistic service they're offering and they've essentially just chosen to essentially nominate whether it be us or another provider to build the poor core public market solution, that model portfolio that really serves as the core their asset allocation.

And they can focus on what they want to focus on, whether it's sourcing private market opportunities, sourcing individual esoteric deals or doing more financial planning, right.

And as part of that, I know that there are some instances where some of those family office advisors will have or multifamily offices will have high net wealth individuals or extremely high net wealth individuals and they may have lower net wealth individuals who still deserve and they want to deliver the robust diversified solutions.

The complexity of some of these model portfolios can vary pretty meaningfully as well, right?

I mean, we see some clients who have model portfolios exclusively constructed from low cost ETFs, which we can talk about in a moment, still gives you a significant amount of levers to pull to incorporate, you know, solutions into the portfolio and solve for different outcomes.

But you can also start incorporating things like, you know, alpha strategies in some instances as ETFs  for all sorts of funds and then alternatives as well.

So we will speak to that in a moment because I'm keen to get your view, but why don't we start by talking a little bit to how do you go about constructing model portfolios?

And you spoke to, you know, customization as well.

So you know, what's the first step?

Sure.

So I think what makes model portfolios unique or kind of one aspect that makes it unique, it's a very hand in glove conversation with the end client, whoever that is, whether it's a wealth client or an institutional client.

It's really kind of learning about what their goals and objectives are, if they have any particular constraints, if they have any particular preferred types of vehicles and also more traditional aspects around risk, return expectations, public privates, but things like that.

And then we can take that order, go back to our lab and leverage those key alpha levers we talked about whether it be strategic or tactical asset allocation, kind of fund selection across both the ETF space, traditional, passive, systematic as well as fundamental active.

They are using those building blocks to essentially effectuate what that clients particular objectives are with those constraints.

And that's really why you've seen it takes popularity because it scales incredibly well.

The capability is very, very scalable.

And like you said, an advisor might have clients across the spectrum and as opposed to them going in and spending a lot of time building individual portfolios for each and every single client, they have an institutional grade portfolio or a series of portfolios that's flexible and can be deployed across a large client base and give them the ability to effectively scale their business and focus on what core activities they want to focus on.

Right.

And we're in Asia Pacific, you know, we've got a variety of regions that we cover and their different clients have different objectives.

You can also incorporate things like, you know, sustainability objectives into the portfolios.

It sounds like Shariah compliance for example.

So significant amount of customization it sounds like.

Yeah, absolutely.

And I think what makes this region so unique if you compare it to your most wealth advisors or financial advisors in the US is they have a multi jurisdictional client base like you're saying.

So your typical financial advisor in the US only works with the US based clients.

But if you talk to a family office or a wealth advisor in this region, they might have clients in five or six different countries.

So there's different kind of regulatory regimes, there's different investment preferences styles.

And that's really where the model piece and that drive to help clients customize that we really believe there is a core central component of our DNA helps effectuate and drive those clients outcomes because it's not realistic to go in and set up an individual fund for each and every client.

There's a lot of operational expense associated with that.

And what they really want is that institutional grade asset allocation and a flexible solution in the models have really been a good pathway to doing that.

Models have really taken hold in the US market going on for about a decade.

And when we were kind of building out our model ecosystem on our team and kind of the 2016/2017 timeframe models were a fairly nascent concept in the US.

But now it's a multi billion dollar approaching on trillion dollar plus market opportunity.

Now we're seeing that start to take hold in Asia Pacific as wealth advisors see an opportunity to leverage world scale players for those public markets type solution that core asset allocation and really give them scale to focus on their best and highest use of their time.

I like that a lot.

And it sounds like that's because models democratize institutional quality solutions.

Well, clients who in the past weren't able to access those types of bespoke solutions, right?

I mean, you needed to be, if you were institutional, you were maybe trading a couple of billion dollars at a time.

You don't necessarily need to be that size these days to access.

Absolutely portfolios are at the right.

Absolutely.

I mean, it's true democratization.

So I mean, now, you know, our wealth clients are accessing pretty much the exact same level of IP that our institutional clients are.

Now maybe the vehicles are slightly different, but we're able to effectuate it to where our investment process is meant to scale and transfer across different vehicle types, right.

I want to talk a little bit about implementation as well.

You mentioned a little bit, yeah, you know about how you go about doing that utilizing your investment process and platform.

We've spoken a little bit about this in the past as well.

You know, we talk about, I like that curve where you have X axis is something like active risk or alpha opportunity.

Y axis is something like your total fees that you pay.

And we talk about or you have, you know, your core beta which is down right at the end at the intersection of the two axes.

And then you have your smart beta or common beta is like single factor ETFs for example, you know the core is S&P 500 systematic active, fundamental active or like the high conviction concentrated strategies.

And then alternatives that's something that we offer across the board our firm rather and I know that you utilize a lot of the strategies, most of that curve we offer in ETFs as well.

And then we have obviously alternatives as well.

So how do you think about implementing these model portfolios for clients?

And I know that you're also open architecture, which I think a lot of clients appreciate too.

So how do you think about that?

Yeah, So like I said, once we have a client's desired outcomes and required parameters, that kind of gives us avenue to then implement our asset allocation process.

Generally speaking, we will be investing in the public market space deploying both strategic and tactical asset allocation.

In Asia, most of the investors we engage want some elements of dynamism or attached class of tactical allocation in their portfolios.

It's a bit more common in the US to see kind of Strategic Asset Allocation (SAA) only asset allocation coming from a model provider, but in Asia, we're typically using both.

So our tracking error and our alpha is coming from strategic and tactical asset allocation.

You mentioned some other types of creative vehicles that are now available in the ETF wrapper, kind of gives us the ability to go into more of the alpha generative security selection category or premium harvesting category, just an extra component of returns we can add in the portfolio, whether it's fundamental, whether it's systematic in nature and combining those for our real, you know, risk taking budget and helping us drive alpha from that.

The last piece like you said would be privates.

So we're starting to see now the confluence of public and private in the model portfolio construct where a client can come to us and say, I want your best asset allocation ideas.

Across public and private and we are able to deliver that.

It's scale and there's a pretty unique differentiator.

You're starting to see elements of that pop up in other global markets, but this is still pretty new territory.

And what you're doing then is you're just delivering an institutional grade multi asset public private portfolio with those different building blocks.

So once you add privates to the calculus, it does change the risk budgeting mix because you obviously are big believers in if you're investing in that space, the liquidity premia, the ability to harvest alpha, the huge levels of manager selector alpha.

So return dispersion that exists in that space between like first and third quarter managers is a very large compared to public.

So if we have that in the portfolio, we are going to then add a big piece of that to our risk budget.

I'd say most of our clients are still focused on the public space with respect to models, but I think a growing number of them are seeing that public and private now due to this kind of mass democratization exercise across vehicles can be delivered in one single solution.

Fantastic.

So we have seen a proliferation of active ETFs and all that's meant is that you still get really robust strong active strategies or capabilities being offered via transparent easy to trade instrument.

Costs come down a little bit.

We're seeing semi illiquid or you know semi private credit exposures like CLOs bank loans.

They're very liquid by definition of being offered via ETFs, but they are differentiated sources of, risk and drags of yield.

So is that changing the public / private mix?

Does that mean that more clients are able to incorporate alternative drivers of risk into the portfolios a little bit easier?

And what are you seeing in that space?

They are.

So I mean, I think some of those would call them private credit adjacent capabilities, primarily broadly syndicated loans or leverage loans as well as CLOs (Collateralized Loan Obligations).

We actually just for the sake of implementation put that in our public portfolios because when clients say public, they don't necessarily mean, you know, publicly traded on an exchange.

What they really mean is daily liquidity.

And because those assets have daily liquidity, we typically do work them into our asset allocation framework even for clients who don't want to invest in true private space.

But like you said, now that ETFs are growing in their scope of influence and now incorporate not just passive vehicles or say passive strategies and systematic strategies, but fundamental active strategies, it gives us a pretty broad toolkit to work with.

I think I mentioned this on our podcasts maybe 2 podcasts ago.

ETFs are not only the vehicle of the future, they're actually the vehicle of the present today.

So you can build a well diversified portfolio across strategic and tactical as well as different types, of underlying vehicles, whether they be systematic or fundamental active using just the ETF wrapper.

So I think one big take away from this conversation that we'd like to leave behind with listeners is don't equate ETFs with just traditional core passive, kind of broaden your scope in terms of how you think about ETFs to incorporate all types of underlying strategies and approaches.

I like that a lot.

ETFs are really convenient, robust portfolio building blocks that allow you to access all sorts of different risk drivers that you couldn't really access in the past super conveniently.

I don't know, a couple of questions that maybe you can answer at the same time.

So what's the client conversation like?

Is it often that you have a client come to you and says, I'm not really sure what I need, but these are the types of, you know, risk return objectives that I have.

How would you then work with them and would you advocate for strong mixes of alternatives as part of those portfolios?

And you know, what kind of scenarios would you do that it?

It's a great question.

So when a client comes to you with this type of request, typically they don't come to us and say I want a model portfolio.

What they do is they describe something a bit more esoteric and outcomes in written, but what they're really asking for is a solution that meets a particular typically a risk and return outcome with some parameters which we can then tie back to our asset allocation framework.

In the event a client does not lay out a daily liquidity parameter or requirement, we will typically explore their interest in private markets just because we do think there is an illiquidity premium to be harvested.

If you're willing to take that illiquidity premium.

We've seen institutions have a lot, a lot of success with that.

We've seen still relatively elevated spreads in the private market space as well.

So for clients who want to go that had the ability to go that route, we typically talk to them about doing that.

For those who just kind of want to stay, let's say, you know, in the public domain, it becomes very much an exercise about equities, core fixed income as well as some of the Asian capabilities such as loans and CLOs.

So that's, I mean, typically how we would think about it, clients use different terminology in Asia.

So they'll use terminology like discretionary portfolio management.

They don't really use the term models much.

So when you kind of talk to them, you have to kind of accept the fact they might not speak and you're like exact vernacular, which is totally OK, but you can kind of tell through enough repetition that's what they're asking for.

There's you give me your IP and a scalable solution that's customizable that I can implement as part of my investment platform.

That's really what they're asking us to do.

Fantastic.

Well, thank your time today, Chris, One last question.

Who's going to win the Super Bowl next year (2026)?

Wow.

It's a hard question because we just finished week one of the NFL season.

So we have 17 weeks to go.

I mean, my natural answer is always going to be the Houston Texans or maybe the Los Angeles Rams, kind of the two teams that I pull for.

But you might have a different answer to that question.

I mean, if you think about, I mean, the NFL is so because it's a high contact sport and so much of it is driven by injuries.

Injuries can completely change the scope and course of an entire season as well as scheduling.

Fantastic, Chris, thanks for the time and I'll get you next time.

Excellent, enjoyed it, said I look forward to another one.

Chris, welcome back Episode 3.

We've been renewed for new season investments unlocked.

How you feeling?

It's great to be picked up by the network for a full season.

Let's see where we can take this.

Absolutely.

Let's talk about, get straight into it, asset allocation, markets, news, noise, data.

And we just had a big pop in the market on Friday (Date: 22 August 2025), the back of Powell's speech.

How you feeling about the state of data and, information markets today?

Sure.

And I would say, you know, a high level take away is, you know, as investors, we are awash in data.

There's data everywhere.

You could argue that investors are drowning in data.

So we really want to focus on what drives asset class returns over a short and long period of time.

That's really what our clients are focused on.

It's return generation, risk management and effectively deploying asset classes to be able to do so.

So when we focus on data and data sets, it's always going to flow through into our investment process which is focused on identifying drivers of asset class returns across equities, fixed income as well as alternatives.

And we think about that over multiple time periods.

So we have data that we think is important and relevant that's going to drive long term asset class returns.

Think about 7 to 10 year periods.

There's data we look at where we think there are effective multi year opportunities to harvest premium or harvest returns.

And then there's more short term tactical data that we look at.

As you know, it's really looking at what's called like 6 month to three-year positioning, a bit shorter term, a bit going to be focused on data that's going to drive markets over a shorter term time frame.

But that's how we think about that.

Is it going to drive returns and over what time period is it going to do so?

So the data we see out there that we're hit with in the news every day, some of it's interesting and maybe informative to a degree, but a lot of it isn't going to effectively

drive asset class returns over our set time frame and we maintain consistent exposure and a consistent focus on the data that does that.

Now, can you find, you know, analogs and correlations between the data sets we use in some of the data you see release on a daily basis?

Yes, But we remain focused on the data we think is consistent and relevant to us, Right, OK.

So, you know, we've got earnings reports, other economic reports, you know, inflation, PCE, for example, the Fed likes to look at employment or unemployment rather.

So what are some of the data sources you think can trip up asset allocators or aren't necessarily super informative when it comes to asset allocation?

Absolutely.

And I would say a high level take away.

Well, I won't pick on any source of data individually.

Typically data that is lagged and highly subject to revision is more challenging for us to use in our research ecosystem.

Most GDP forecasts are as such.

It's lagged information.

 It's telling you what's already happened.

And by the way, that can be revised upward or downward in subsequent quarters.

It'd be very similar with jobs reporting.

So you can have a report that comes out on a Friday, the market reacts to it, but then a couple of months later that data can be revised up or down for it.

We want data that's real time, consistent and is not subject to revision, particularly with respect to tactical asset allocation.

We have a shorter term investment horizon.

We're trying to navigate within a market cycle to generate our performance over let's say like six months to three years.

So understanding what data is that driver and what's going to affect our position is very, very important for us.

So those are kind of a guiding principle we have.

We think about a lot of survey based data particularly for our tactical asset allocation.

So if you think about consumer surveys, if you think about business and manufacturing surveys, if you look at financial conditions, if you look at industrial output, I can kind of talk about why that's relevant and interesting.

Even in the US as it's become less of an industrial economy, that's still very important information.

And then construction and housing data and that data is typically forward-looking.

It's not as subject to revision.

And we found putting that data together creates a very good set of leading economic indicators that we think can meaningfully and positively impact our portfolio positioning, whether we want to take more risk or less risk in our portfolio.

We complement that with market sentiment oriented data, which is simply just risk adjusted returns of asset classes over short to intermediate term time periods.

So we were having this conversation offline before we started the podcast.

The market actually is a great piece of forward-looking data, forward-looking information.

The market actually leads our leading economic indicators.

So when you pair those two together, you can really get a good clear, well, OK, is the economy accelerating or decelerating and is it above or below its long-term steady state?

And that's really, as you know what drives our tactical asset allocation positioning.

And from there it's simply just identifying the asset classes that are most effective in those macroeconomic regimes, which we've already done.

We published papers on that.

So that that's how we think about data that's not subject to revision, scalable, reliable, typically prospective in nature.

So those are the type of things we're going to focus on.

OK, that sounds like some of the challenges of that backwards looking data that can be adjusted later on.

It is backwards looking sounds like a lot of people use that data to inform their portfolio construction process as well, which maybe not be super robust.

So how does this approach allow you to capture opportunities in markets?

So for instance, in Friday we did see a pop in markets.

That's not necessarily something that I imagine you're looking to capture.

It's more of a sentiment type of markets.

But how does this process allow you to capture opportunities in markets whilst keeping an eye on risk, for example?

Sure.

It's, it's a great question And at least you know from a tactical perspective we would look at something like a kind of a consistent increase in risk assets.

So we actually think that market improvement you saw on Friday is simply just a reflection of more positive views on the macro economy, thinking about the market leading the economy and not the other way around, right?

You don't want to be adjusting US allocation just based on some sentiment.

Exactly right.

You're going to want to look at consistent data over a short term, immediate term period of time, not based on one source or piece of information.

I mean, it is we've kind of talked about in prior podcast, you've actually seen the data coming out of the US continuing to decelerate since the back half of 2024.

The market is kind of continued to plug along regardless.

But those are the things we're typically focused on.

If you saw a meaningful improvement in sentiment and then you saw that coupled with improving leading economic indicators, which I haven't really seen yet, you would pair those two together.

And then that would compel us to re risk our portfolio.

Because remember we're thinking about our tactical asset allocation not over one day time frames, but over six months to three-year time frames.

So since we have time to effectuate that decision, that's how we're going to think about deploying asset classes.

That's how we're going to think about relevant data and therefore

OK, it makes sense.

And you know I spoke about Friday market popped up because people think there's potentially an upcoming rate cut.

How does this approach allow you to position your portfolios to take advantage or to navigate potential rate cuts or rate hikes?

Absolutely.

So a piece of data we really like to look at is financial conditions.

So when the market reacts favorably to a perception that rates are going to be cut more aggressively, what they're saying is financial conditions are now going to be easier, borrowing costs are going to be lower.

That's going to compel the creation of credit, it's going to compel spending, and that's going to be good for the macro economy.

That's generally how that thought process works.

So we would look at financial conditions data, which we do.

It's actually publicly available.

Most of it is for what it's worth.

So that's how we would think about that.

Like, you know, policy information is reflected in that number.

There's other kind of private sector data that's reflected in that number as well.

I mean, obviously from, you know, 2020 to 2022 to 2023, there was a massive degradation in financial conditions because conditions were just tightened and tightened and tightened.

And that's where you saw in 2022 where you had both negative returns from equities and bonds in the same year.

So now we're starting to see financial conditions improve early innings, we'll need more data to support that as well as some of those other data pieces I talked about, but probably headed in the right direction.

So that's how we would think about that information that came across the board on Friday.

OK, great.

And would that how would your strategic asset allocation change and your tactical asset allocation change, would it be both adjusting or just one?

How would you adjust your strategic asset allocation and tactical asset allocation?

And then the SAA maybe later on, it's a great question.

So I'll break out how we think about are return drivers over short and long periods of time, what data goes into those.

For the most part we've been focused on tax class allocation in this conversation.

You bring up a good point around SAA (strategic asset allocation).

So SAA or strategic asset allocation has a very different set of return drivers associated with it because SAA is typically a 5 to 10 year process.

So for that we're going to look at long term Capital Market Assumptions (CMAs) and we're going to look at we call strategic return drivers or strategic premia for CMAs.

For CMAs, that's simply just what are the best drivers of asset class returns over long periods of time, which for equities is going to be nominal earnings growth, dividends plus buybacks as well as evaluation.

Component to that, fixed income is mainly going to be driven by starting yields, shape and slope of the yield curve, expectations for forward rates as well as expected credit loss.

For both, let's call it investment grade as well as non investment grade (IG) bonds, I can kind of determine like how we think about the concept of credit loss.

Those are very different than you know a piece of short term data or macroeconomic survey or financial conditions or housing starts or anything like that.

So that's what drives Strategic Asset Allocation (SAA) because what drives asset class returns is fairly consistent and academically studied.

It's kind of ironic because I think most things in life it gets harder to predict the further you weigh, the further away you are from the present asset classes.

It's almost like it works in reverse where you can think about what drives returns over long periods of time.

It's harder when you actually get shorter to the present moment.

Most asset allocators will tell you I have much more confidence in my return forecast over the next 10 years than over the next 24 hours.

Most things in life work the other way.

So that's how we think about SAA particularly those Capital Market Assumptions (CMAs).

OK.

I know that for instance, you have as part of your, I think this is your SAA, you'd prefer to target systematic drivers of risk.

So for instance, rather than high yield, vanilla U.S. dollar high yield, you like fallen angels, you like emerging market debt currency currently.

So is that coming to your SAA? And what kind of data do you use as well in those situations?

Exactly.

So as you know, with SAA, there's a CMA component that is very asset class focused.

The challenge with CMAs is they're very effective over 7 to 10 year time periods.

Most clients don't exhibit the level of patience to stick with a singular idea for seven straight years if they don't see it working.

So yeah, yeah.

So CMAs are helpful as a guidepost and as a component of our asset allocation process, but having I'd say more effective drivers that can be deployed and effective over multi year periods.

And that's where you get into these we'll call strategic return drivers and we've talked about some of these on subsequent calls.

Where can we harvest consistent premia over a multiyear period in the fixed income space?

It's much more intuitive, right?

Because you're harvesting spreads. Where can you harvest spread in an asset class adjusted for risk over a multi year period.

Like collateralized loan obligations is something I think we've talked about every single call we've had so far.

Because that is a strategic return driver, you can be compensated more for owning that asset class versus a commensurately rated investment grade corporate bonds.

You're getting paid that spread.

We actually consider that an SAA driver.

You mentioned high yield fallen angels, so high yield fallen angels, that's another strategic risk premium.

We think about improve premium over basic high yield instruments over a multi year time period.

So they fit somewhere kind of in between Strategic Allocation (SA) and Tactical Asset Allocation (TAA).

We technically allocate them to the SAA basket.

We'd also put style factors in that basket as well.

So think about quality, value, momentum.

So where can we harvest some of this consistent premium over let's say a three-year time period and get paid to do it.

It's very hard to generate a CMAs for something like that that's not incredibly intuitive with the CMAs that are more longer dated, that are more basic asset classes and then the strategic return drivers.

We marry those two together and we think what is a pretty effective SAA process over a / a three plus year time period.

Again, I haven't talked about any of the data that came up at the beginning of the call.

So, so I think that's something I want to want to emphasize as, as well as what drives long term returns, what feeds into that.

And that's how we think about data sourcing from there.

Excellent.

We'll come to the end.

What do you like in markets today before we wrap up, what are you looking at right now?

Sure.

So complex question.

I, I would say, you know, we remain relatively defensive in our tactical asset allocation because like I said, there's decelerating data coming out of the US looking at those leading economic indicators, you've seen sentiment start to improve.

Let's see if that's improvement in sentiment works its way over to leading economic indicators that would cause us to re risk our portfolio in our tactical sleeve.

I would say in the SAA category that remains pretty consistent.

I think one big aspect investors might have to get used to over the next 10 years vis-à-vis what you saw over the last 10 years is in a basic portfolio of stocks and bonds.

Over the next 10 years, a much greater proportion of your return is going to come from fixed income than we saw over the last 10 years.

So if you think about fixed income yields, you know, on the corporate side being let's call it like 4 1/2, five plus percent, that's much different than what we saw ten years ago.

So that's being I think particular in fixed income and really thinking a lot about your fixed income or your income allocation, being very intelligent there, being very thoughtful there because that's going to be a huge driver of your returns.

So I'd say right now in our fixed income portfolio we're a bit more quality IG focused, but like I mentioned earlier, you can still harvest meaningful spread in that space without taking a lot of risk.

So that's really where we're thinking about tilting in the fixed income space right now.

If you are going to go into sub investment grade an asset class that's very meaningful and our asset allocation as you know is probably syndicated bonds.

So it's some investment grade, but typically has much higher quality prospects than a commensurate high yield bond.

And you actually get paid more to own it right.

You're getting 100 basis points spread almost over there.

So you're getting you know 100 basis points in spread over traditional high yield and actually about half the expected credit loss.

So even in that non IG space, we're going to be very thoughtful about how we harvest spread, how we manage risk and, and therefore, so that's really I think how we want to think about fixed income going forward is how do we get, you know, effectively paid to own that risk.

But we want something that's going to be a big return driver for us going forward.

We don't just want to go completely into risk off because we do think of the next 10 years, equity returns might not look like what we saw over the last 10 years.

So we really want to make sure the fixed income piece is on point.

You know, what do you think of the tax-based US equities right now?

Yeah, so that's a question we get asked I think just about just about every day.

Yeah.

So there's a couple of schools of thought there.

I think as asset allocators, we are naturally always thinking about diversification and how do we diversify our portfolios globally, how do we diversify our portfolios within markets.

And obviously, as you've seen, US equities continue to concentrate more and more at the top end.

We've seen a lot of institutional investors, in particular more sophisticated asset owners look towards diversifying it to, let's say, systematic strategies that have a kind of natural aversion to high levels of concentration that you might see.

And I mean, tech companies now are much different than the tech companies of 25 years ago.

So they have much higher quality than what we would have seen in that index a couple of decades back.

And if you actually pair that building block with another building block that's a bit more systematic in nature, as we've seen, can actually be a fairly interesting combination.

I think what gets more challenging is when investors want to put all their eggs in one basket, there's definitely a place for that investor portfolios.

It's just effectively squaring and impairing it off.

So the sum of the parts is essentially greater than the individual components.

Fantastic.

Well, Chris, thank you very much for your time today.

And we'll hopefully see everyone in the next episode.

Hopefully we'll have to fight another day.

Thanks, Chris.

That was really good.

Yeah.

Hi, everyone.

Welcome to our second episode of Investments Unlocked. Once again, I'm Chris Crea.

for Asia Pacific ex Japan. And today we're going to be talking about portfolio construction.

So we've got a couple of questions for you, Chris, something we discuss all the time, something that you do day in, day out.

So portfolio construction is obviously super important for all the investors across all segments, wealth, institutional to have robust investment processes.

Everyone's managing multi asset portfolios in some form or another. But basically our view is that there are ways of getting better at building portfolios and whether it's using different tools, different vehicles, a variety of investment strategies, it could be just passive, passive, active alternatives. Any decision is an active decision.

So what are you seeing today? How are you constructing your own portfolios?

First off, thank you for having me today. It's great to be here for episode #2 of the podcast.

Really excited to dive into some of these core topics around portfolio construction.

And I think what we're seeing now from investors both in the institutional and the wealth space is really, I think a further fine tuning and refinement of their underlying investment processes to really focus on the key component parts and underlying drivers of risk and return.

I think historically portfolio constructionist might have thought about building portfolios from a very kind of bottom up type approach is simply selecting effective or historically effective active managers, putting those portfolios together, not really taking a tremendous amount of inventory of what's there and maybe some of the unhidden risks.

I think what we're seeing now is a really sharp focus on both strategic and tactical asset allocation and then effective manager selection across both traditional passive building blocks, systematic building blocks and as well as core traditional active building blocks.

So thinking about all those key areas separately, but then rolling them up together to make sure the entire portfolio is effectuating core investment outcomes.

I think another big trend we see is really the institutionalization of the wealth channel.

We now see the wealth channel with, I think, roughly the same style of investing in the same types of blocks available to them that you see even with large institutions.

You've seen this trend unfolding now in the US for quite some time.

You're starting to see that unfold in Asia Pacific right now, where a lot of the same tools and techniques that institutions have used for a long time, you're seeing sophisticated wealth managers deploy those.

So those conversations we have now, I think almost move in tandem.

They almost move in lockstep.

So we're now having conversations about tracking error, about SAA (Strategic Asset Allocation)/TAA (Tactical Asset Allocation) decomposition, about manager attribution with family offices as well as sophisticated wealth intermediaries just like we would with sovereign asset owners.

So like just kind of a further refinement of the process and more focused on I'd say an analytics driven, quantitatively driven approach.

And I just giving investors more comfort around like what's there, what risks are in the portfolio and do the summation of those risks create a reward value proposition that's going to make the portfolio ultimately successful for our investors.

Yeah, fantastic.

And right.

So back in the old days and you would have seen this as well during your time in the US and a little bit potentially here in Asia.

We've been for a while similar.

I saw this back in Australia and a little bit in Asia as well.

You had the old process of let's buy a bunch of really attractive historically performing active managers blend 25 of these strategies into a portfolio for a client look at having an equity fixed income split.

And that's My Portfolio.

And as we know, that's not a super robust way of approaching portfolio construction nowadays.

To your point you have. Let's think about what our performance benchmark is going to be.

Let's think about what our strategic asset allocation should be potentially via some optimization process using analytical tools.

What's our implementation process going to be like?

What kind of structures or vehicles we want to use?

And of course, we're seeing a little bit more of what's my active risk budget, how much tracking or active risk am I willing to take around my strategic asset allocation and what kind of fees am I looking to spend as well?

And obviously fees is the question conversation point that I'm sure you're having all the time as well.

Absolutely, Yeah.

So I think from that, you know, perspective, I think you lay out the narrative, I think you lay out the case, you know, really, really well.

And by the way, we're firm believers in the value of active management.

We just believe in deploying it effectively and intelligently and using very much, I would say, risk aware approach to leveraging those strategies.

So we're going to take more of an inventory of what we think the market's going to look like going forward over maybe picking managers or picking strategies based on historical return.

So you obviously know we have a suite of long-term capital market assumptions as well as other strategic return drivers that help kind of set the stage for our portfolio construction process that we think is going to be the effective asset allocation schematic of the future.

And then from there, we can go in and appropriately populate that with active managers, with passive strategies, other ETF.

Do they really put together a compelling offering that essentially harnesses the power of our investment process with efficient levels of tracking here.

Totally said, harvest outperformance vis-à-vis benchmark because that's openly what our clients expect of us is to outperform the benchmark.

So we want to make sure the sum of all the individual components is actually greater than their individual parts, right?

And of course, we have a lot of active ETFs as well these days utilizing our really strong investment capabilities globally at Invesco, bringing some of those appropriate into the ETF format as well.

And like you said, ETFs have a place into portfolios, active strategies have a place in portfolios as well.

How are you seeing the allocation across ETF building blocks, active strategies and alternatives relative to what we used to see in the old days, how people being a little bit more selective with where and how they implement particular asset classes and strategies?

Sure.

And I'll kick off with ETFs.

And I would argue that ETFs are not only the vehicle of the future, they're the vehicle of the present.

And what you see now is ETF wrappers which give you exposure not just to traditional passive strategies than cap weighted indices or even smart beta strategies, but also active strategies.

And you see you know kind of you are from helping to kind of you know kind of lead the way in the proliferation of those types of investment vehicles.

So now as really portfolio constructionist, we can put together investment solutions that have exposure to kind of active, systematic and passive using a fully ETF driven line up.

I think another huge observation we see him back to that observation I shared earlier about wealth Vs institutional.

Is that the institutionalization of wealth?

Like I talked about a couple of questions ago, what you see now is institutions adopting ETF.

Historically we've thought about ETF as a vehicle for wealth and for retail.

Now we're seeing big institutional asset owners heavily engaged in ETF because they see the efficiency, they see the ability to get exposure, they see the cost effectiveness and then they're able to essentially get their underlying desired exposure through the ETF vehicle and not through other more costly cumbersome vehicles or, or approaches.

I think the private side is also interesting.

You know, as, as well as you know, when we think about investing in asset classes like private credit, we're looking at broadly syndicated loans, we're looking at asset classes like CLOs (Collateralized Loan Obligations).

Those are huge building blocks for us and the ability to leverage those in an ETF wrapper is huge because it gives us a lot of optionality within clients.
It gives clients a very flexible way for them to essentially intake our IP (Intellectual Property) and embed in their portfolios and hopefully leverage it to generate alpha.

So that's really how we're thinking about ETF as a vehicle.

It's evolved quite a bit over my last 10 years on the team.

It seems like every year we're using ETFs more and more in terms of our portfolios and these kind of ETF driven solutions or ETF driven model portfolios are not just kind of a huge staple of our day-to-day conversation with clients.

Yeah, you raise a great point as well around incorporating more and more ETFs into portfolios, not necessarily because people don't like active strategies because you can get so much granularity in the ETF space.

If your investment processes look at broad beta exposures, style factor exposures, single style factor, systematic active multi factor or not fundamental active, right, you can do a lot of that through ETF, right?

Doesn't necessarily mean that you're a passive investor.

You're making a lot of really active decisions and that's a big educational journey.

We're taking clients along right now is there are still some clients who I think are anchored to that historical mindset of, well, ETF equals passive.

And it doesn't a lot of cases, but it doesn't in every case.

And it's really getting clients to kind of expand their minds and expand their horizons and kind of understand what's available to them.

And I think once those unknown become known, I think they're able to kind of, I think fully appreciate our investment process we bring to the table and ultimately able to put together portfolios that they are much more well equipped for the next market cycle.

What's really exciting is some of the access ETFs are delivering to sophisticated investors who don't necessarily have the resources that large institutional investors might have.

So for instance, senior bank loans, collateralized loan obligations, accessing semi private, the ETF structure is fantastic, right?

Absolutely.

And it just kind of goes back to that whole confluence of wealth and institutional, like the ETF vehicle is really driving most of that.

It's like we're all using the same kind of underlying investment universe now for utilizing the same vehicles.

There really isn't that much of a difference between what you're saying with an institutional asset owner and what you're seeing with a family office or a wealth manager.

It's, it's really, truly kind of democratizing the investment universe.

That's really exciting.

We're seeing some fantastic portfolios from wealth clients as well where they're doing some really interesting things.

So you kind of touched on this topic a little bit, you know, investors potentially getting anchored to historical returns that active managers might be delivering and looking at those versus like a broad market index or some of the traps that you see investors falling into today.

And what would some of your, what would you suggest they look at to try and rectify some of those traps?

It's a great question.

Is it kind of a big part of our business within solutions?

We actually analyze different investor portfolios using our analytics platform called Invesco Vision, as you know.

So we look at thousands of portfolios a year.

So we have a pretty kind of, you know, robust inventory of like what we think like underlying investors are doing in terms of in terms of building portfolios.

And I think kind of the big take away I have is investors not really fully knowing what they own and taking like a very kind of deep X-ray in terms of understanding what holdings they have, how those holdings interact together.

Do those underlying holdings drive a risk profile that's going to create an economic benefit to your portfolio over a long term?

It's going to suit your goals.

And really I think knowing what's there in the underlying and how those decisions interact together, how do your different managers work together?

Are they, do they have something like you know, negative excess return correlation or do they have positive excess return correlation?

Are they making the same alphabets?

Things like that.

I'd say more on the systematic side.

How are you defining your underlying factor exposure?

What factors are you targeting?

Are you using a strategic approach?

You're using more of a dynamic approach on the passive side.

I think a lot of times people aren't even necessarily thinking about which indices they're replicating and is that index really going to give them the best underlying exposure to effectuate their asset allocation view.

So it gets really diving deep kind of going, you know, a couple of miles below the surface level, kind of getting past the tip of the iceberg and really having some of those deep conversations.

I think you see a lot of concentration in portfolios in certain areas since we work a lot with financial advisors or wealth advisors.

Not surprisingly, we see concentrated portfolios given the run up in US tech stocks.

We saw an abatement in that right around the time we shot our first podcast the markets kind of since you know reconcentrated in the NASDAQ 100's done really, really well.

So we'll see concentrated equity portfolios.

We'll see kind of a lack of global diversification which exposes portfolios to some risks as we've seen unfold in 2025 with everything we've seen with kind of a trade in geopolitical issues.

And then on the fixed income side, you know, often times we see either an over concentration of interest rate centric bets or credit centric bets.

So we'll see investors either underweighting or overweighting their duration without being like really conscious of it, focusing very much on like credit heavy portfolios and not understanding what some of those different levers can do for you from a diversification perspective like duration can.

So it's like another area to where investors also have things struggle with putting fixed income building blocks together and not really thinking about fixed income is kind of like a series of asset allocation decisions and split between let's say investment grade and some investment grade.

In private, they're kind of just picking really good managers, which kind of work individually.

But when you roll them up, oftentimes we're making a lot of the same macro bets.

So really like unpacking, I think all that getting really granular and kind of understanding what each an individual risk looks at and kind of almost reconstructing it from the beginning.

They're like, well, OK, what does the end result look like now?

Does this actually create a risk profile that's attractive to me?

Does this align with my long-term return expectations?

Is this align with my tactical views?

And then kind of thinking about it more of an iterative process versus like more like backward looking like we see in a lot of portfolios we look at, right.

You raised some really common traps that I see a lot of investors fall into, which is allocating to a lot of active managers, not necessarily fully having a view of what they're doing under the hood.

One manager might be taking a value tilt, another might be taking a growth tilt.

And if you're not balancing these allocations, you get a really expensive, inefficient broad beta exposure.

I think there are a significant amount of fixed income building blocks out there investors have at their fingertips, which gives you a lot of levers to pull to solve for a variety of outcomes, risk, return outcomes.

We see the same thing, a tendency to allocate to a handful of active managers, not necessarily seeing what they're doing under the hood and potentially being able to construct something a little bit more bespoke for your own clients.

Utilizing things like ETFs as well or incorporating ETFs into that existing process.

For instance, looking at different credit quality exposures, different duration exposures and diversifying across the capital stack, for example.

Exactly what are you guys doing in in that space right now, just out of curiosity?

Yeah.

I mean, I would say something I would implore investors to think about more and more is looking at ETF's with respect to implementing their fixed income views.

Because we talked about at the beginning of the conversation, because ETF's give you a very targeted specific universe by which to invest, you can become very granular in terms of how you pick certain types of asset classes, credit types, vehicle types, structures.

Truly I think construct A uniquely alpha generative portfolio coming from your fixed income assets.

I mean, as you know, I think the ability to make decisions across the strategic and tactical spectrum using ETF's on the fixed income side is very, very important to us.

Whether we're looking at core investment grade exposure, whether we're looking at something like high grade CLOs, whether we're going kind of in the sub investment grade space and looking at very unique asset classes, we find very value additive like something like high yield fallen angels.

And those are very specific alpha levers to our investment processes, you know, and we're able to essentially replicate them exactly with ETF's.

So and that's really where we've taken a lot of kind of research effort over the last couple of years and kind of thinking about, OK, what are good strategic return drivers in our fixed income portfolio and essentially mapping those over to available ETF so we can actually effectuate those views in a live format.

And you can do that because of the transparency of the ETFs, right?

It's something that some of our investors really like is that you look at the ETF, you see all of the fixed income characteristics on that ETF.

You can see the yield to maturity, all the yield to worst.

And then you can also look at the weighted average market price of the underlying bonds.

You can look at the weighted average coupon.

So you get a really good feel for what's driving the yield in this particular portfolio, right.

Is it, is it deep discounts to par?

Is it really high coupons, right, from different credit qualities?

And that's something that you can't always get from some opaque active managers, right?

Correct.

Yeah.

I mean, ETFs give you the feel of owning individual securities.

Yeah.

So it feels like we own a portfolio of individual securities with the level of I think specificity and granularity we can get around portfolio characteristics and analytics and ETFs are able to provide that to us.

And instead of owning you know 650 different individual bonds, we might own six or seven ETFs.

We have a completely diversified end to end global fixed income portfolio across investment grade and sub investment grade, right.

I, think the instances where investors don't want to be at the whim of an index methodology and potentially have the PM (Portfolio Manager) sell down bonds at a price they're not necessarily keen to sell down those bonds at.

You can then look at our bullet shares range, which is, you know, term maturity type ETFs that's there's a fantastic for us that liability matching portfolios as well, right?

Absolutely.

I mean, I think you break them.

Another interesting point is even now for let's say liability sensitive investors, traditionally we've thought about very complement, very complicated LDI (Liability-Driven Investment) type structures to match those liabilities.

Now with the advent and creation of ETF's, you're actually able to use ETF type vehicles.

You're giving an example of the bullet shares for liability sensitive investors who have a particular liability that's due at a certain date or a cash flow that they have to match at a certain date.

And I'm being able to use ETF's to do that, not having to buy 750 individual bonds.

I think it's ease of access, it's diversification.

There's a liquidity component and there's just a simplicity component that I think helps people sleep at night, right.

And I just heard that our AUM is now over 2 trillion globally in U.S. (Source: Invesco, as of 30 June 2025) dollars.

A third of that is fixed income.

We have a lot of scale that we can deliver through those ETFs as well directly to investors.

So there's a lot investors need to consider when constructing portfolios.

We've spoken a little bit about some of the approaches investors can take, some of the traps they might fall into to what are some of the benefits of investors coming to a large institution like Invesco to engage with Invesco and yourself on an advisory basis? What are some of the benefits they can gain from that?

It's a great question.

And I think you investors, I think you tap our expertise.

I mean they're trying to leverage what we can do come through a variety of dimensions, right?

Some investors kind of tap us and they just want to seek, I think kind of broad-based portfolio advice.

Maybe they'll have us analyze one of their portfolios and you provide some areas of expertise so we can maybe provide value on the margins.

Some investors come to us and actually want us to build individual end to end solutions for them, leveraging the full suite of our asset allocation views that I've talked about throughout the course of this conversation.

I think when investors tap us, I think the value they receive is, I think it's really threefold.

I think 1, the breadth of capabilities.

I mean, you talked about our firm just hitting 2 trillion in AUM (Source: Invesco, as of 30 June, 2025), which I think is a pretty big deal.

There aren't a lot of firms in the industry that have that level of scale.

But I think two additional things we bring to the table are transparency.

I think if you think about our team, as you know, because our investment process is systematic in nature, it's highly transparent.

So we're able to share a lot of information with our clients, not just in terms of the what in terms of our investment process, but the how and the why.

So I think investors walk away with a really good concrete feeling of what our investment process is, how it works and how it ultimately adapts to changing market conditions.

And I think the third piece would be flexibility.

As you know, the heart of any solutions team is always going to be built around the concept of customization.

So we're usually very keen and acceptable of customizing on behalf of our clients because we are systematic in nature.

It makes customization actually a fairly straightforward and scalable process.

So I think it's really those, those three things.

It's that breadth of capabilities, transparency and flexibility.

And I think that's kind of wrapped around, but I think it's a very solid communication ecosystem.

I think something we strive for on our team is if you ask me the question in Asia, you get the same answer in Asia as you do in North America, as you do in Europe.

We all try to communicate with each other, speak with each other, share a common research platform and set of ideas.

So you're getting really, I'd say, a common best practices type approach, whether you engage us in the US or you engage us in Hong Kong.

Fantastic.

Thank you very much, Chris.

Well, thank you very much for joining us on our second episode of Investments Unlocked.

Thanks, Chris.

Hi, everyone.

Welcome to our first episode of Investment Unlock.

I'm joined today with Chris Hamilton, our Head of Client Solutions for Asia, and I'm Chris Crea, APAC ETF Specialist.

Hey, Chris, welcome to the podcast.

Chris, thank you for having me.

I am looking forward to unlocking investment opportunities with you and unlocking all sorts of types of opportunities with you on this podcast.

Fantastic.

Love that.

All right, well, look, there's so much happening in markets today and has been for a little while throughout all 2025, it feels like.

So might right get right into it.

Chris, what are you seeing in markets today?

So you, you're a great question and obviously there's a lot of, you know, consternation right now in the marketplace with the prevailing narrative with, with our clients and let me you know, delineate a bit.

So I think a lot of the issues we've seen with respect to trade policy geopolitics over the last six weeks has really been an acceleration of a trend we saw started to take hold towards the end of Q3 where you have a decelerating macroeconomic environment in the US, You had arguably a cyclical bottoming in developed markets ex US.

And the confluence of those two factors was really accelerated by the policy news on, on what we're calling Liberation Day.

So we've been defensively positioned in our portfolios for some time now.

So that's actually been very helpful for us.

Now the question is when do we see that abating?

We think this will probably last now for the next few months, let's say before we reemerge.

But in the meantime, we have taken risk off the table.

Yeah, got it.

And that was going to be my next question, which is really around how are you currently positioning your portfolio.

So sounds like you've been defensive for a little while already seeing a little bit of uncertainty in the markets.

So how are you positioned across your client portfolios today?

Sure.

So I can unpack how we define defensive positioning in a portfolio.

And this environment is unique because typically you're positioning against equity risk or interest rate risk.

And in this environment, we're actually very concerned about both and that's having a market impact on the way we've built portfolios.

So when we're building a defensive portfolio, we're going to have a bias towards developed market equities and in this case, a bit of a bias towards, let's call it Developing Market ex US  equities in our tactical sleeve underneath the hood.

That's where we're going to make a lot of dynamic tweaks to our equity exposure.

Some investors choose to deploy that using sectors.

As you know, we choose to deploy that defensiveness using factors.

So we're going to overweight factor characteristics like high quality equities, low volatility as well as momentum to really increase the drawdown protection aspects of that equity sleeve.

So that's how we take risk off the table in equities.

Fixed income, like I said, we're also worried about rate volatility.

So we're higher quality in our fixed income portfolios, but we want to be sure and integrate assets which are going to which are going to mitigate against interest rate volatility.

So shorter duration, but think about assets that are high quality.

So think about something like high grade collateralized loan obligations, which have a positive relationship with interest rates.

As interest rates go up, the payments on those underlying loans go up.

So really being thoughtful and intelligent on that side.

So not just going in and piling into long duration bonds per se, but being surgical and nuanced in terms of how we achieve that high quality exposure.

And ultimately we want the equity and fixed income component to diversify itself.

So in that environment, that's how we're putting that defensive exposure together in our underlying portfolios.

So as always, diversification is the key in particularly in markets like this.

And you touched on this a little bit.

You know, US country risk is typically a big portion of our clients portfolios where it's through the US dollar.

And you just spoke to, you know, a lot of people see high quality bonds as treasuries, which is being a challenge to asset class currently as well, especially on the, long end of the curve, like you said.

And then of course, equities are struggling a little bit now as well.

And we've seen tons of flows to try and mitigate against this.

And you spoke to factors.

And I won't pivot for just a second.

You know, looking at US equities, we're going to talk about opportunities outside of the, US equity and, and U.S.

market in general in a moment.

But within US equities, we think that a great, the great way to start incorporating downside protection is via utilizing factors.

And, and you mentioned things like quality, low volatility.

We've been seeing ETF flows into those exposures.

So single factor quality, low volatility, a bit of momentum.

Interestingly, high quality hasn't worked as well as, as people expected.

I think there's, you know, it's a bit of a polluted exposure right now with, Magnificent 7 constituents.

How do you think about blending factors?

Because we know, we speak to clients, you can't just go and buy every single factor ETF out there and just start mixing it together because you'll end up with potentially offsetting effects or less efficient factor exposures.

So how do you think about blending factors as part of your portfolios?

That's a great question.

So I think you allude to a really important step when thinking about constructing factor or portfolios.

I think some investors choose to layer factor exposures on top of each other.

So blending a low Vol index with a quality index with a momentum index, as you point out, there are certain isolated factor exposures right now which aren't as performing, I would say in line with their expectations given the particular regime, quality being one of them with it's high overweight towards technology.

What we do to evade this, we actually score stocks at the individual holding level.

So when I say we prefer exposure to quality, low volatility, momentum, we actually score that and we look for stocks that have all three of those embedded underlying characteristics.

So stocks that have high quality but also high Vol won't make it in the portfolio.

So that's how we abate for some of that is that individual stock level scoring versus blending exposures together, which has some of those unintended consequences and doesn't allow you to harvest the full benefits, especially in an environment like this where low Vol is very much doing its job, but quality and isolation isn't doing what you would expect in a draw down type environment, if that helps.

Yeah, that makes sense.

Thank you.

So it sounds like as always, you know, we advocate for incorporating single factors into client portfolios and you can do that very easily utilizing low cost ETFs.

But it sounds like if you would like a multi factor exposure, it might be a good idea to outsource that to potentially active strategies in ETF format.

Things like systematic active equity where you have a PM constructing those multi factor portfolios from the bottom up and ensuring that you have a very efficiently shaped factor portfolio.

Well, that's a great point.

And I'm really glad you brought that up because I mean those are available not only in I think traditional active structures, but you've seen a huge growth as you know and you're sitting right at the center of this in active and smart beta ETFs.

Yes.

So I would actually argue that you have the ability to deploy a variety of approaches in the factor construction space using whatever fun vehicle is appropriate for you and your clients.

Absolutely fantastic.

Well, great to speak about factors and you know, we see factors being primarily used within the US equity sleeve.

You can obviously implement factors globally as well.

But why don't we move on a little bit and speak a little bit to what are you seeing, you know, opportunities outside of the US?

Sure.

So, so outside of the US, you know, we've seen I'd say a re emergence in momentum which really started in Q4.

Obviously you've had some huge accelerants to that, mostly driven by geopolitics, whether it be, you know, trade policy, whether it be kind of global defense policy.

So the trend has very much been with the developed ex US space, many European economies, European markets are up year to date meaningfully busy with the US being let's say down about 5 1/2% as of the time, as of the time of this podcast. (Source: Invesco, the podcast is recorded on 29 Apr 2025)

So we typically are still going to have a preference for those defensive factors outside of the US, but we have increased that developed market X US exposure since Q4.

So we have been  more prospective on that vis-a-vis US.

So that's typically how we have thought about it.

I'd say our exposure to emerging markets which is probably a relevant subpoint here too from a tactical perspective, I would say we've had an underweight towards the benchmark, but we see pretty meaningful strategic long term opportunities in that space.

If you think about something like China equities with very attractive valuations and potential, you know, fiscal and stimulative catalysts, that's an interesting full cycle opportunity.

We would, we would argue so.

So no matter how you think about it, we do think that global diversification in your equity sleeve and not just kind of being completely anchored or leveraged to 1 market is absolutely a sound approach.

You know, going forward.

We've actually had, I'd say anecdotal conversations, you know, externally over the last couple of months we've had clients ask us should we just start benchmarking our entire equity portfolio to the S&P 500.

And we would argue that having a global portfolio and a global benchmark does make sense over a long period of time.

We've seen that really come to fruition very loudly in 2025.

I would say on the more like income side of the equation, we do see interesting opportunities in Asian investment grade bonds and the like.

I think there are longer term opportunities and in EM debt there are some strategic risk premium there that we think you can harvest depending on your underlying base portfolio.

So that diversification story not only resonates within equities but also within fixed income as well.

I think now investors have I think learned the lesson of over concentrating in a particular geography as we go through 2025.

So I think going forward, diversification, while theoretically it always makes sense to investors now they have a real life case study that they've lived through in the near term that I think showcases the efficacy of diversification on a high level.

So that's a great point.

And you spoke to this a little bit earlier today.

So you have your strategic asset allocation, then you have your tactical asset allocation overlay.

How are you trimming your SA (Strategic Allocation),which is obviously longer in time horizon and, and how are you then reallocating some of those exposures strategically and then what are you doing tactically as well?

It's a great question.

So when we think about strategic and tactical asset allocation, we're going to think about it in terms of a risk budget versus a benchmark.

So an active risk budget.

And I mean, typically it's going to be fairly split evenly between tactical and strategic asset allocation.

So we define tactical asset allocation as, let's call it, 6 to 18 months and we'll call strategic asset allocation 3 plus years depending on the underlying signals that we're using.

So on the tactical side, we're gonna think about as I've kind of alluded to throughout this conversation, you know macroeconomic regimes, risk sentiment, leading economic indicators, a lot of forward-looking survey based data that is not highly subject to revision like GDP prints or weekly employment reports.

So that's going to drive our tactical mix with the whole thought that if investors are increasing their unit of risk in their portfolio, they think they're going to get paid for taking it and that's ultimately prospective and opportunistic and positive for the global macro economy.

The inverse would be true if they're reducing risk in their portfolios and over weighting asset classes like long duration bonds on the strategic asset allocation side, that's where we're going to think about strategic risk from you.

So where can we cleanly and efficiently harvest a risk premia over a base asset class over a three-year.

And like one class example, you know I alluded to earlier in the conversation was high Glade collateralized loan obligations, so very high grade, high quality floating rates.

And over time you've been able to harvest a premium over comparably rated investment grade bonds by about 80 to 100 basis points.

So getting paid to hold that asset class over a multi year.

Is I think a really good example of how we think about SAA (Strategic Asset Allocation).

Another example from an SAA perspective would be factors.

So we actually think about factor exposure, think about quality, value, momentum as we've talked about throughout this conversation as an SAA tool versus something I would say that is more theoretical or research based in nature.

So actually thinking about those as SA drivers on multi year basis.

We also can look at long term capital market assumptions as well, long term asset class forecasting.

Those are more like it's called like 7 plus years.

Those take a longer duration to come to fruition.

But really whether it's strategic or whether it's tactical, you know, we want to make sure that we have a sound robust research based process that it's going to add value over those requisite time frames.

So 6 to 18 months for tactical in three plus years for strategic and then blend those two and make sure those ideas in concert actually have diversifying properties and kind of, you know, benefit each other respectively.

So that's how we think about the SAATAA piece.

They're very much customizable levers.

You have some clients who want to be very much strategic, You have some clients who want to be very much tactical, but kind of in default mode.

That's typically how we think about employing and implementing strategic and tactical asset allocation.

Got it.

I thought it was interesting, but it makes sense now think about facts of like low Vol potential quality is as being part of a tactical sleeve.

You know, we're obviously again, seeing a lot of flows into low volley type exposures and we're speaking a lot about how to incorporate downside protection into in particular the US equity sleeve.

Would you what are you seeing with option based strategies today?

And you know, we need to wrap up soon, but I think this might be an interesting way to end today's podcast.

You know, option based strategies have become super popular.

I know we have capabilities in the space.

How are you seeing such strategies being incorporated into portfolios and what's the purpose?

Why are clients using these strategies more and more today?

2 interesting points there.

And I'll kind of go back to your original notion around factors.

And we actually did a podcast on this a couple months ago, which I would encourage everyone listening today to go back and listen to.

We think factors can be deployed in a tactical or a strategic framework.

So I talked about the efficacy of factors in a strategic framework, harvesting factors over a full market cycle in a tactical framework.

As I mentioned earlier, we think about factors as a way to increase risk and reduce risk in a portfolio as an alternative to sector allocations.

So that that's kind of how we would delineate factory usage across those two approaches, which we think have a high level of efficacy in both.

Now on the more like, like options based side, I mean that's an area too where we have a quite a bit of experience not only constructing those portfolios, but integrating them into broader diversified solutions.

And I think a lot of, you know, inquiries we're getting from clients right now is, well, I want to find a way to effectively triangulate income participation and protection and options are a very good tool to really accentuate those desired outcomes versus just using kind of plain vanilla asset classes.

So that's where the options based income strategies can really come into play.

And while this is a conversation in and of itself, what we try to do is leverage A diversified pool of options to generate basically equity exposure that has roughly 85 to 95% of equity upside, roughly 75% of market downside and eight to 10% income depending on the underlying investment universe.

We think kind of going forward where capital returns might be a little bit more challenging to come by and clients want to participate, but they want to protect as well.

But naturally they want to participate at a greater rate than they have a downside exposure.

That's where the option strategies are super interesting.

So we very much are doing that from a systematic perspective and essentially it's something that can work across any universe.

So that's really become a good surgical multi use tool that we've embedded into our portfolios over the last 12 months.

Fantastic.

So sounds like you're basically getting protection, you're getting market participation and you're getting a constant stream of income and exact digital cash that you can do whatever you want with basically.

Exactly.

Fantastic.

Well, Chris, thank you very much.

That's it today.

Thank you everyone for shooting into our Investment Unlock podcast and looking forward to speaking to you again very soon, Chris.

Thanks, Chris.

Looking forward to having a successful series of podcasts going forward.