Building a Better Portfolio: How Blended Strategies Help Manage Risk

laurenbaker444
Jun 9
3 min read

This is the final blog in our series exploring the evolving relationship between active and passive investment strategies. Throughout this journey, we've made one thing clear: this is no longer a binary debate. The key isn’t to pick a side — it’s to focus on what works best for the client.

Blending investment styles gives planners the flexibility to construct portfolios that are diversified, adaptive, and aligned with client objectives. Ultimately, this approach is about better outcomes, particularly when it comes to managing risk and ensuring consistency over time.

Why Blend?

If there’s one image to carry with you from this series, it's the iceberg analogy. A passive-only strategy may steer straight into the problem and wait for recovery. Active managers, on the other hand, have the discretion to adjust course. But neither strategy is infallible on its own.

By blending both active and passive strategies, planners can:

· Diversify across investment styles as well as asset classes

· Reduce exposure to manager-specific or market-specific risks

· Create a more balanced, smoother return profile over time

Evidence:Morningstar’s 2023 report on blended portfolios noted that combining active and passive strategies often resulted in better risk-adjusted returns than portfolios that used only one style.

While a blended approach may incur slightly higher fees, the aim is not just to match the market — it's to deliver outcomes above the average, particularly in volatile or transitional markets.

Building Blocks: How to Combine Active and Passive

Think of a well-diversified portfolio like a well-designed building: the foundation may be standard, but the materials and design features must adapt to the context.

Core exposures — such as global developed equities, UK large-cap or US indices — can often be served well by low-cost passive funds or ETFs.
Satellite exposures — such as emerging markets, thematic strategies, small caps or ESG-focused mandates — may benefit from active management, where inefficiencies and opportunity gaps are greater.

You can also introduce a tactical overlay, using model portfolios or strategic tilts to adjust asset allocation during changing market conditions.

Blended portfolios are dynamic — they’re built with adaptability in mind.

The Role of Research and Monitoring

There’s a common misconception that passive investing removes the need for due diligence.

That’s not true.

Even with passive funds, planners must understand:

The index methodology being tracked
Cost differentials between providers
The sector and regional biases within certain benchmarks

With active managers, due diligence goes deeper — evaluating style drift, consistency, and process repeatability.

At QuantQual, we support advisers by:

Conducting research across both active and passive solutions
Evaluating fund performance and risk characteristics
Helping advisers monitor, compare, and evidence their chosen blend

This ongoing research is key to delivering sustainable client outcomes under frameworks like Consumer Duty.

Case Study: A Blended Portfolio in Practice

Here’s a simplified example of a blended 60/40 strategy designed for a balanced investor:

This blend offers:

Cost efficiency via core index funds
Targeted return enhancement through active thematic and fixed income exposure
Downside risk management by avoiding rigid index allocation

Over time, such a portfolio could deliver greater resilience in volatile markets, while still maintaining fee discipline.

Conclusion: Active and Passive as Partners

It’s time to move beyond the idea that investors must pick a side. The active vs passive investing debate is outdated.

Today’s investors deserve portfolios built for outcomes — not ideology. That means using the best tools available, whether they’re passive or active, to meet a client’s goals in a structured and transparent way.

It’s not about choosing sides. It’s about building the right mix — for the right goals, at the right time.