Standard Life Investments

MyFolio Risk-based investment process

Each MyFolio fund targets the highest total return achievable for the chosen level of risk, while the income funds also invest with a focus on income generation. To achieve this, our process contains three key steps.

1. Strategic asset allocation

To create the most efficient asset mix for each fund, we engage the help of Moody's Analytics, world-leading experts in risk-modelling solutions. They use a process called constrained optimisation, which relies upon a detailed understanding of how each asset class is expected to behave: how it is expected to perform over the longer term; its volatility; and how its performance correlates with other asset classes. Investing in asset classes that behave differently under various circumstances is key to maximising the benefits of diversification.

The optimisation process informs the strategic asset allocation benchmarks that we expect to generate the highest returns for each level of risk. Each selected asset combination will represent one of the five risk levels offered through the MyFolio funds.

For the actively managed MyFolio fund ranges – Managed and Multi-Manager – there is an additional step involving the allocation of absolute return investments. This is a matter of judgement and we have elected to replace 20% of their growth assets and 10% of their defensive assets with absolute return components.

2. Tactical asset allocation overlay

The next step is to apply Standard Life Investments’ tactical investment views in order to take advantage of shorter-term investment opportunities. We do this by fine tuning the strategic asset allocation with the aim of increasing returns. This step is carried out by Standard Life Investments’ highly experienced multi-asset investing team.

3. Fund selection

The final step is to select the individual Standard Life Investments funds and external funds to go into each MyFolio portfolio. This is carried out by our fund solutions team, which acts as a centre of excellence for fund selection across the Standard Life Group.