With the 2016/2017 English Premier League season taking shape, it seems there are striking similarities between portfolio construction and selecting the ever important fantasy football team.
From a ‘top down’ perspective, the traditional stalwarts within client portfolios – equities and fixed income – are akin to players from the ‘Big Four’: Manchester United, Manchester City, Chelsea and Arsenal (cue disgruntled Spurs and Liverpool fans).
Although these popular asset classes remain the foundation upon which to build a portfolio, there is an increasing necessity to diversify into alternatives such as absolute return funds, structured products and infrastructure in a bid to spread risk, dampen volatility and reduce reliance upon returns from generic equities and bonds.
In a similar vein, the Big Four’s dominance is being challenged by clubs such as Spurs, Liverpool and Everton who are threatening to break the cycle at the top of the league. In 2015 for example, a team full of misfiring Manchester United and Chelsea players would have significantly struggled, as would a client portfolio full of UK Financials and Oil stocks. The point being that both successful portfolios and successful fantasy XIs look to achieve a well diversified blend of ‘holdings’ with complimentary characteristics in order to outperform peers across any time period.
Once the composition of the portfolio or team is decided upon it is paramount that you have faith in the strategy and do not make too many changes. By all means monitor waning positions and if underperformance persists then necessary alterations must be made. Nevertheless, keep in mind that the most effective portfolios and fantasy teams are those that stick to their process and stay in the game for the long haul!