Codexa Services: Asset Advisory

Our experience suggests that investors often fail to differentiate between diversification—having their eggs in many baskets—and asset allocation—having their eggs in the right baskets. We can help institutional investors evaluate and implement appropriate advisory policies for their portfolios. We aim to partner effectively with client investment teams, serving as an external sounding board for in-house investment professionals and review committees.

Our Process and Perspective

Asset advisory assignments begin with collection and evaluation of raw analysis from our network of affiliated research professionals. As we assess this information in relation to client portfolio holdings, we aim to identify inconsistencies that arise between existing, locally generated ideas and the worldwide picture.

Our asset advisory work typically focuses on those geographies, sectors, and themes intended to outperform on a medium-to-long term basis. We may adjust those considerations for near-term opportunities as market cycles evolve, including issues that may relate to the currency overlay.

No market is unaffected by others. Analyzing the dynamic nature of interaction among markets is a critical component of the value we bring to our relationships.

Islamic Implications

For Islamic portfolios, we accommodate the effects of excluding exposure to financial-stocks, which represent the one of the largest components of global market capitalization. We can include considerations related to liquidating haram holdings such as stock ownership of companies with alcohol-related businesses or excessive debt levels.

Traditional strategic and tactical asset allocation work has extended well beyond early-day focus on primary geographical allocation. However, given current—albeit evolving—limits within the universe of Islamic funds and related implementation instruments, we often default to this perspective before overlaying a sector or thematic approach to portfolio construction.

Although our efforts are global in nature, we can ensure recommendations appropriately reflect a home-market bias and implementation constraints. Our work stretches across asset classes, including direct investment, private equity, real estate, sukuk, and public equity.

Asset Advisory Case Study

In the second quarter of 2009, a Middle East institutional investor was considering folding into its portfolio an equity position in General Motors. Their argument was largely technical, related in part to the company's bankruptcy proceedings.

Our role was not to reiterate the existing research on GM. Rather, we reviewed the current cyclical exposure within the portfolio and determined if a large-cap auto company was the most appropriate fit, especially given other holdings in European and Asian auto manufacturing. The portfolio manager may not have fully appreciated his bias toward firms in this industry.

Given the overexposure to auto counters, we suggested that other cyclical-sector purchases might better diversify risk within the context of total holdings. We offered a selection of representative ideas for further analysis by the in-house investment team, focusing primarily on auto component manufacturers with a supplemental recommendation favoring the machine-tool sector.