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Best Practices inPortfolio ConstructionAre investors ready for lower growth for longer? How are they working to bridge the performance gap?

Moderator – Niall O’Leary , Head of EMEA Fixed Income Portfolio Strategy , State Street Global Advisors

This material is solely for the private use of CFA Netherlands members and is not intended for public dissemination. All the information contained in this presentation is as of date Indicated unless otherwise noted

Marketing communication

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FT Remark SurveyComprehensive survey of senior executives at 400 large institutional investors.

Qualitative and quantitative questions; all interviews were conducted, by appointment, over the telephone.

Broad range of institutional investors from around the globe.

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Source: SSGA 2015 survey of institutional investors, conducted by FT Remark

Sovereign Wealth Fund

9%

Endowment/Foundation

20%

Fund of Funds/

Investment manager/

Trust20%

Pension Fund24%

Insurance Fund27%

Survey

respondents

by type

Americas38%

EMEA38%

Asia24%

Survey

respondents

by region

US$5 bn+63%

US$1–5 bn13%

US$0.5–1 bn12%

US$200–500 mn12%

Survey

respondents

by AUM

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In the study, we explored

1. Current return expectations and investors’ confidence in their capacity to attain portfolio growth objectives over the medium to longer term.

2. The adoption of new asset allocation strategies to meet performance gaps amid today’s challenging markets.

3. The obstacles that may be constraining the uptake of potentially helpful new approaches, such as factor and objective-based investing.

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Challenges for Investors

• To achieve investment objectives, investors need to work their asset allocation harder, and smarter, than ever before.

• For an increasing numbers of investors, this means challenging traditional strategic asset allocation models.

• Greater need to consider risk and stronger focus on the actual return drivers of chosen asset classes.

• But while alternative models — such as factor-based, liability-driven or other specialised approaches — provide potential pathways, obstacles to putting them into practice can arise.

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In Figures

Investors' long-term return expectations on overall portfolio.

Building bridges to meet performance needs...

97% Of investors expect significant change in the industry’s investment approach over the next 5 years.

10.9%

41% 30% 25%

Define exposures the traditional

asset class way.

Have adopted factor-based approaches.

Use objective-based

classifications.

Blenheim Capital Management

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Source: SSGA 2015 survey of institutional investors, conducted by FT Remark

5.5%

8.1%

10.0%

10.9%

10.9%

11.5%

12.5%

13.4%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

Bonds

Commodities

Equities

Real estate

Overall portfolio

Infrastructure

Private equity

Hedge funds

What are your long term return expectations (defined as 5 years+) for each of the asset classes in which you are invested and for your overall portfolio? (Mean)

Return Expectations Versus Reality

Hitting the Mark

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Source: SSGA 2015 survey of institutional investors, conducted by FT Remark

18%

28%

25%

31%

32%

32%

25%

75%

60%

59%

54%

51%

51%

66%

3%

9%

13%

15%

15%

13%

9%

0% 20% 40% 60% 80% 100%

Objective based: Real-return

Objective based: Liability-based

Objective based: Growth

Objective based: Income

Objective based: Capital Preservation

Objective based: Liquidity

Rules-based strategy: Smart beta

No improvement Little improvement Moderate improvement Significant improvement

How would you rate the approaches already implemented in helping you meet your long-term goals?

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20%

6%

78%

77%

84%

2%

17%

16%

0% 20% 40% 60% 80% 100%

Passive

Active

Smart beta

Decrease Stay the same Increase

Increasing use of Active and Smart Beta

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Source: SSGA 2015 survey of institutional investors, conducted by FT Remark

24%

6%

74%

75%

86%

2%

19%

14%

0% 20% 40% 60% 80% 100%

Passive

Active

Smart beta

For the equity portion do you expect the allocation to active, passive and smart beta to change over the next two years?

For the bond portion do you expect the allocation to active, passive and smart beta to change over the next two years?

Bridgewater

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Barriers to Implementation

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Source: SSGA 2015 survey of institutional investors, conducted by FT Remark

4%

17%

14%

17%

17%

12%

19%

6%

13%

13%

19%

17%

8%

24%

9%

9%

16%

9%

12%

26%

19%

0% 10% 20% 30% 40% 50% 60% 70%

High costs in transitioning

Difficulties in explaining theory toinvestors/fund participants

Lack of proven record of performance

Difficulties in benchmarking

Lack of board buy-in

Lack of in-house expertise

Lack of widespread adoption by peers

First Second Third

What are the biggest obstacles in implementing smart beta? (Please rank top three)

Proportion of respondents citing lack of peer adoption as a barrier to smart beta adoption.

MSCI

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3%

43%

54%

No change Moderate change Substantial change

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Source: SSGA 2015 survey of institutional investors, conducted by FT Remark

11%

68%

22%

How much will organisational structure, benchmarks and investment approaches have changed in five years' time?

Change is Coming

My Organisation Other Organisations

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For more information, please contact your local State Street Global Advisors representative or visit ssga.com

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Tracking Number : EMPRES-6671

Expiration Date : 09/30/2017

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