Category: DB DC

Holistic alpha management: Deploying your active risk budget effectively

As the French philosopher Voltaire said,

Uncertainty is an uncomfortable position. But certainty is an absurd one.

He understood that you can't ever really know anything.

Nowhere does this ring truer than in the world of investing. 

And yet any well formulated investment strategy must start with clear investment beliefs. The important point, however, is that this does not mean to say that those beliefs are immutable or that they must be followed blindly. Beliefs shouldn’t be plucked from thin air, they should be well evidenced.

The weaker the evidence or rationale for the belief, the more important it becomes not to be overly reliant on it. In a world where those with the boldest, loudest opinions often get the most attention, admitting uncertainty in assumptions could be perceived as a weakness and a lack of confidence. But this is the wrong way to see it – really it is honest risk management.

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