Alliance Bernstein Manager's Odd Take On Efficient Frontier Portfolio Theory

If there is a portfolio that is superior to the efficient frontier, that means that your efficient frontier is not in fact the efficient frontier.

I thought that was pretty obvious, but it's not to Ranji Nagaswami of Alliance Bernstein, or Kathleen McBride, who interviewed her in Investment Advisor Magazine.

Here's a good quote from Nagaswami on her belief that managers should have mandates to invest across all asset classes ( i.e. int'l and domestic growth and equity):

The whole job here is to identify a group of asset classes that have as low correlations as you can possibly get, so that when something is not working, something else always is. By pulling together these negatively correlating assets you actually improve the risk-return tradeoffs. You can get above the so-called efficient frontier. The efficient frontier itself gets most people pretty close to a good solution, but we think being a little bit more thoughtful by style, geography, and capitalization can get you above the efficient frontier. That's our goal, right?

Uh, no, sorry. The whole point is to identify a group of asset classes that have low correlations with each other so that you can construct a portfolio that puts you on the efficient frontier. If you do a study, and you find that your have put together a portfolio that is greater than the efficient frontier, then you might want to reconsider how you are defining the efficient frontier.

This is kind of surprising, given that Alliance Bernstein has some excellent international investment products (I in fact have some clients in some of them). Presumably she is not the one picking the stocks.