Kay Review calls for urgent rethink on portfolio construction

John Kay has released his final report on the UK financial services sector, calling for investors to rethink their approach to portfolio construction and risk management.

The author of the government-backed Kay Review recommended asset managers run more concentrated funds, judged on their long-term absolute performance, which will allow them to engage more with the companies they hold. Kay (pictured) also said investors should not rely on tracking error against a benchmark as a measure of risk. “Risk in the equity investment chain is the failure of companies to meet the reasonable expectations of their stakeholders or the failure of investments to meet the reasonable expectations of savers. Risk is not short-term volatility of return, or tracking error...