While the pension industry has traditionally spent a lot of time focusing on active management and its impact, the right result is driven by strategic design, said Brett Sumsion, portfolio manager at Fidelity Investments, during a session at Benefits Canada’s 2019 DC Plan Summit in Banff, Alta. in February.
“A strategic design [is] about diversification, about not knowing the future. . . . With active management, you’re saying, ‘I have a view and I have information that I can use to add value to a shareholder’s account.’ Most portfolios have this — a strategic design and an active element to it. All of it rests on research. Some of those are quantitative tools and some are fundamental tools.”
The types of information used to make decisions about strategic and active outcomes include global demographics and long-term GDP potential, which breaks down into productivity and labour force, said Sumsion. “So how much output do I get per person and how many people do I have?”
Today’s late cycle environment has rising inventories, wage growth, monetary policies and tightening lending standards and employment conditions, he said, noting it isn’t the time to take a lot of cyclical risk and deviate from a strategic benchmark.
“I’ll leave you with this: the strategic allocation being driven from those secular views, the longer-term demographic forces, the cyclical views being driven by things like business cycles and kind of more active elements,” concluded Sumsion.
Read more coverage from the 2019 DC Plan Summit.