While the pension industry has traditionally spent a lot of time focusing on active management and its impact, the right result is driven by strategic design, said Brett Sumsion, portfolio manager at Fidelity Investments, during a session at Benefits Canada’s 2019 DC Plan Summit in Banff, Alta. in February.
“A strategic design [is] about diversification, about not knowing the future. . . . With active management, you’re saying, ‘I have a view and I have information that I can use to add value to a shareholder’s account.’ Most portfolios have this — a strategic design and an active element to it. All of it rests on research. Some of those are quantitative tools and some are fundamental tools.”
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The types of information used to make decisions about strategic and active outcomes include global demographics and long-term GDP potential, which breaks down into productivity and labour force, said Sumsion. “So how much output do I get per person and how many people do I have?”
Today’s late cycle environment has rising inventories, wage growth, monetary policies and tightening lending standards and employment conditions, he said, noting it isn’t the time to take a lot of cyclical risk and deviate from a strategic benchmark.
“I’ll leave you with this: the strategic allocation being driven from those secular views, the longer-term demographic forces, the cyclical views being driven by things like business cycles and kind of more active elements,” concluded Sumsion.
Read more coverage from the 2019 DC Plan Summit.