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Multi-Asset Investing: A practical guide to modern portfolio management by Yoram Lustig

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17. Investment selection process

Investment selection has three main objectives:

  1. Identifying investments that match as closely as possible the desired exposures as per the asset allocation (beta)
  2. Identifying investments that potentially add outperformance (alpha)
  3. Evaluating whether investments are likely to meet their expected return and risk

Beta exposures align portfolios with their investment strategy so actual portfolios closely reflect the asset allocation, which reflects the investment objectives. Alpha adds to investment returns, either across asset classes (TAA) or within asset classes (investment selection). Finally, investments are like any other product; buyers need to ensure that what they buy fulfils their expectations. ...

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