Risk and Return
Risk and Return are related – by allocating capital to higher risk investment assets, investors can expect a higher return to compensate for the risk being taken. Equally, capital invested in lower risk assets is to be expected to generate lower returns.
Jessop tilts the equity element (i.e. higher risk assets) of its portfolios towards small and value companies as these types of company have a higher expected return than the broad equity market due to a risk premium for investing into such companies.
Jessop skews the bond element (i.e. lower risk assets) of its portfolios to high quality, lower risk bonds in order to reduce the risk of the equity element.
Blending a number of asset classes together (also known as diversification) in one portfolio has the effect of reducing portfolio volatility below that of the individual constituents – one of the insights for which Harry Markowitz was awarded the Nobel Prize for Economics.
Jessop blends a variety of asset classes together in its portfolios in order to benefit from diversification.