Bank of Singapore Unveils New Investment Framework for Stable Returns
Bank of Singapore (BOS) has introduced a new strategic asset allocation (SAA) framework, the result of a year-long study that included stress-testing 120,000 portfolios. This framework utilizes a “robust optimization” technique designed to create investment portfolios that can better withstand market uncertainties and deliver more stable returns.
The new SAA framework has been implemented across five different risk profiles: conservative, moderate, balanced, growth, and aggressive. The extensive year-long study and testing were led by Dr. Owi Ruivivar, BOS’s chief portfolio strategist.
BOS stated that this “robust optimization” technique addresses shortcomings found in two common approaches used by private banks: mean-variance optimization (MVO) and market cap-weighted benchmarks.
BOS explained that their new approach “promotes greater diversification across asset classes to reduce risks and focuses on minimizing the potential loss in the worst-case scenario.” This aims to reduce the performance gap between the best and worst-case outcomes. In contrast, MVO can underperform when market conditions deviate from predictions, as it relies heavily on accurate forecasts. Furthermore, portfolios built using market cap-weighted benchmarks often become overly concentrated in the US market, which BOS suggests is not ideal in the current environment.
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