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Optimizing An Equity Program

20 min read
Senior Strategist
Investment Strategist

Executive Summary

  • At State Street Global Advisors (SSGA), we think there are six key considerations for large asset owners building an equity portfolio; tracking error budget, the investable universe, manager capacity, asset owner AUM, diversification and fees.
  • We believe enhanced index strategies are often more effective as a core allocation than multi-manager active combinations; particularly for large asset owners with a limited tracking error budget.
  •  At low tracking error budgets, we recommend a larger allocation to index core, with a smaller allocation to enhanced and active strategies on top. As tracking error budgets increase beyond minimal levels, we recommend a significantly larger allocation to enhanced index strategies.
  •  The case study analysing the trade-off between active risk and return in this paper demonstrates our reasoning for these recommendations. The case study provides a guide that asset owners can follow to build an equity portfolio that reflects their own circumstances.

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