We believe three interrelated decisions impact performance:
Strategic Asset Allocation
Market Street views asset classes as either lower volatility (cash and investment grade fixed income) or higher volatility (high yield bonds, hedge funds, equities, real assets and private equity).
Tactical variations from a client's Strategic Asset Allocation are sometimes made based upon Market Street's view of the relative attractiveness of different stock and bond markets. Tactical deviations tend to be more short term in nature, and usually play a minor role in portfolio returns at Market Street for two reasons:
Market Street's manager selection process aims to identify those managers who have proven consistent outperformance of an appropriate benchmark. Furthermore, Market Street focuses on after-tax returns and will not select managers with excellent pre-tax returns if their after-tax performance is substandard. This represents an extremely high hurdle:
From a greatly reduced pool of potential managers, Market Street's research process identifies those funds where we have the most conviction of persistent future outperformance.