Evergreen believes that Strategic Asset Allocation (SAA) is an integral part of good investing.

Too many SAAs are based solely on ‘what others do’ or ‘what sounds about right’. Evergreen’s SAA has been formulated in response to our conviction that what really matters are the fund objectives and with the view that traditional capital markets will perform far more moderately over the next ten years than they have since the 1980s.

In addition, Evergreen believes that, when warranted, an active approach to asset allocation can benefit the end investors. Our Dynamic Asset Allocation (DAA) service aims to incorporate valuation based decisions into our medium-term outlook and asset allocation positions.

Asset Allocation Advice

Evergreen’s Asset Allocation Committee has been providing active asset allocation recommendations for more than fifty years in total. As such, we are well versed in not only providing active valuation based advice but also in delivering in an adviser friendly format. The following below outlines our methodology and delivery process.

Evergreen’s Active Asset Allocation Process

Evergreen’ asset allocation process is active in two distinct ways. 

Strategic Asset Allocation (SAA) reviews tend to be quite different to the prevailing orthodoxy. We will make decisions when they are needed.  Recommendations are therefore continuously updated as a function of changing valuations and macroeconomic context.  This process can be termed Dynamic Asset Allocation depending on client requirements and implementation time horizon. 

We believe the other area of differentiation unique to our process is the practice and discipline of helping clients communicate active asset allocation positions to advisors.

The Asset Allocation Process

The process below illustrates the various inputs, the process and the typical interaction with clients, their Investment Committee and production of advisor materials.

Macro-Economic Input

Evergreen encourages debate within its Asset Allocation Committee and also with its cadre of external advisors who bring their own diversity of views to our process.  We consider the following inputs:

  • Sentiment
  • Macro-economic environment
  • Long term expected returns
  • Current valuations
  • Portfolio parameters and preferences

The Valuation Process

The active allocation process is primarily valuation driven and based on our free cash flow yield methodology. From this, we build our ‘base case’ scenario for SAA and DAA.

Customised Advice and Implementation

Once we have a set of signals for the ‘base case’ scenario, we will then adjust this based on our client’s needs and present this at their Investment Committee. We can discuss the size of positioning and the number of positions taken and we can use different simulated and historical scenarios to test tolerance and expectations of under and outperformance over different time horizons.

The following diagram illustrates how we integrate the extent and breadth of asset allocation positions.  The bottom graph represents the strength of valuation signal and conviction, given the macro-economic backdrop.  A client who wishes to position themselves at the edges of the distribution would typically be one that only wishes to implement a few high conviction asset allocation tilts on a periodic basis.  Such positions tend to be driven to a large extent by valuation metrics and secular rather than by views on the current economic backdrop and cyclical considerations.  On the other hand, a client in the centre of the distribution would prefer to take many smaller positions and potentially make smaller changes more often.

Once we have established how a client and their Investment Committee wishes to implement decisions, we will undertake scenario analysis to help clients determine the typical size of asset allocation positions that they wish to implement.  This is represented by a rotation of the active weight function in the top part of the above graph.

Adviser Interaction and Client Communication Material

Once the active asset allocation positioning has been proposed, discussed and ratified by the client’s Investment Committee, we can create collateral for the advisor and the for the advisor to share with his or her individual clients. In the case of active asset allocation advice, we will provide a recommendation that outlines the changes and reasons for the recommendation.

We envisage that these documents can form part of the advisor engagement process and Statement of Advice respectively.

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