Deutsche Asset Management has launched a new approach to passive investing which it says refines the fundamental principles of the traditional approach. GrOWE, alternatively Growth Optimal World Equity Portfolio, was developed by Deutsche’s research centre and seeks to optimise investment by maximising long term growth subject to an investor’s preferences and constraints.
Deutsche claims that the constant rebalancing inherent in GrOWE will produce superior diversification, reduce volatility and hence enhance returns. The approach builds on Deutsche’s earlier work on so-called preference-based portfolio choice- a collection of tools used for estimating efficient frontiers.
The methodology groups assets in order to maximise the long term growth of a portfolio with risk levels similar to a selected index. The technique, which neither forecasts nor estimates returns, is the subject of a pending patent application.
Under traditional index management investors hold the same portfolios irrespective of their investment preferences. By maximising the growth rate of assets rather than merely tracking a benchmark, the method seeks to provide better returns while maintaining similar risk levels. The strategy also incorporates the investor’s investment preference.
“By challenging and reappraising the very fundamentals of the traditional approach, we are now able to offer a dramatically enhanced passive investment return potential with similar risk. This method has refined the efficient frontier,” said Jim Creighton, managing director and head of indexing at Deutsche Asset Management.