Modular Portfolio Construction
“If Modular Portfolio Construction catches on, Janus hopes it might someday be recognized as a new beginning for retail portfolio construction. Say the rocket scientists at “Janus Labs”:
“Today’s complex markets require more innovation and comprehensive solutions to investing than ever before. Traditional approaches, nine-box style grid, and core/satellite models may not meet those expectations.
“What’s needed is a flexible framework hat will help your clients take full advantage of all the market has to offer today – all of its differentiated and non-correlated choices, the latest in active management and near-term macroeconomic opportunities.”
The approach involves four separate buckets: “core”, “alpha”, “alternative” & “tactical”.
- “Core” (a.k.a. beta): described by Janus as then “workhorse” of the portfolio. Curiously, it also “seeks to limit downside risk”. Short of overpriced portfolio insurance, we’re not sure equity market beta provides such protection.
- “Alpha”: active small/mid-cap management, “concentrated styles”, and “unconstrained portfolios” (nee: hedge funds?)
- “Alternative”: (they start to lose us here) Features a “low correlation with core and alpha”, “potential positive returns regardless of market”, and “lower standard deviation”. To us, this sounds like alpha.
- “Tactical”: Janus says this portion of the portfolio can “potentially capitalize on macro-economic trends” by actively trading beta in the form of ETFs.