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Jeff Molitor, CIO Europe, Vanguard

Institutional Asset Manager Survey: Key trends in institutional asset management 2009-2011 and beyond: Jeff Molitor, CIO Europe, Vanguard

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In light of the current fiscal and monetary concerns that are gripping the minds of investors around the world, Institutional Asset Manager asked the heads of some of the world’s leading asset managers to share their thinking on portfolio management trends post-Lehman and beyond 2011 in concise fashion. Jeff Molitor (pictured), CIO Europe, Vanguard, responds:

"In both the equity and fixed income space, the move away from capitalization-weighted benchmarks to equal-weighted or alternative benchmark approaches is an unfortunate trend in institutional investment segments, reflecting a backwards-looking view of the markets and active bets based on data-mining (marketed as indexing).  As with any single or set of factor bets, sometimes they will work, sometimes they won’t.

"Equal weighted portfolios are very expensive in terms of transaction costs, and the idea that conventional benchmarks are easy to beat ignores the reality published in study after study showing that less than a quarter of all managers beat the market after costs. 

"We’re seeing alternative strategies promoted that would seem the perfect antidote to issues that faced investors in the most recent periods or appear to address the "risks du jour".  Some currently trendy ideas include strategies that promise lower portfolio volatility, low correlations with traditional liquid assets, and packaged solutions dubbed "absolute return" (which rarely deliver what’s on the tin).

"The trend going forward is likely to differ in many regards. Institutional investors are increasingly skeptical and concerned about costs, transparency, and risks. They are aware that the history of investment markets – reflecting the returns of traditional measures of beta – should not be ignored."

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