Although the fund managers are wholly responsible for taking decisions with the portfolios they run, they receive input from the Portfolio Strategy and Risk team (PSR), which examines the portfolios to see whether they are taking the right degree of risk, and crucially, whether they might be taking any unintended risks.
This could be, for example, from exposure to macroeconomic factors that sometimes develop in portfolios and that could detract from the performance of the fund manager’s stock selection.
We believe that risk management should enhance performance, not constrain it.
The PSR team sparks debate on portfolio construction by looking at the collection of stocks in a fund and analysing how they behave in connection with each other. This helps fund managers construct their funds to maximise returns from stock selection ideas.
Equally important is that the team can highlight areas where managers may need to take more risk in order to ensure that a holding can deliver the returns that are expected of it. Thus, the team can assist with the effective allocation of the risk 'budget' of a fund to the highest conviction ideas.