We employ a rigorous optimisation process based around mean variance and Monte Carlo modelling. Our modelling looks at various risk/return statistics in both absolute terms and also relative to the reference portfolio or benchmark (if relevant) using forward looking expectations for asset class returns, risk and covariance.
Other approaches we may take include: focusing on balance across a broader array of risks beyond simply volatility (e.g. drawdown); focusing on a specific goal, such as income or inflation sensitivity; or building a portfolio around underlying risk factors (credit risk, equity risk etc.) rather than simple asset classes.