FOR RELEASE
May 28, 2008

CONTACT
Kate Hendrickson
303.850.3079

New Research Highlights Challenges and Opportunities for Portfolio Construction

DENVER—May 28, 2008—Investment Management Consultants Association (IMCA) recently conducted a study in collaboration with Cerulli Associates to provide an in-depth look at portfolio construction and asset allocation.

A number of key issues stand out from the results as portfolio construction evolves. First, advisors are presented with a wider variety of products than ever before. In 2007 there were more than 17,000 mutual funds available in the marketplace. This does not account for the inventory of separate accounts, exchange-traded funds, hedge funds, or other limited partnerships available to advisors and their clients. More than three-quarters of IMCA members reported that the range of products available to them contributed to making portfolio construction more challenging. Despite the increasing popularity of and publicity garnered by alternative investments, mutual funds continue to dominate the retail landscape. Nevertheless, the results of the study suggest that advisors must by prepared to address client questions regarding the validity and structure of these alternative investment products as they relate to portfolio construction.

Although there is an increasing menu of options, the vast array of products must be evaluated to see if they make sense for clients. If the products are appropriate, they must be packaged in a way that creates a more-efficient portfolio for the client. IMCA members ranked style boxes as the most-used portfolio construction method in the survey. Likewise, looking at individual-component asset classes and their historical correlation are the most-popular methods for determining individual portfolio risk. Core-satellite portfolio construction, on the rise with institutional investors, ranks as the third most-popular portfolio construction method.

The research determined that advisors are reluctant to give up control of asset manager packaging and selection as they consider it an essential component of their value proposition. While most advisors prudently seek help to assemble client portfolios, many advisors view client investing as the core of their relationship and ultimately take responsibility for the final decision. In fact, more than half of IMCA’s members report never outsourcing the portfolio construction decision, and another 20 percent report that they rarely do so.

The full results of the survey are available to IMCA members. For more information on IMCA, click here.

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Note to media: If you would like a PDF copy of the full results of the survey, please e-mail Beau Ballinger or call 303.850.3080.

Survey methodology: In February 2008, IMCA distributed an electronic survey to more than 6,800 U.S. members. The respondents included 496 broker-dealer representatives, 84 registered independent advisors, and 99 institutional consultants who completed the survey instrument using Cerulli Associates’ online survey engine, making the response rate 12 percent.