An investment universe is, in essence, a portfolio of securities constructed to represent a particular risk exposure — such as growth stocks, value stocks, small capitalization stocks, long bonds, intermediates or cash equivalents. These customized universes have been increasingly applied to performance measurement, and the accumulating evidence suggests that their active management is the primary determinant of investment strategy success.

Active management is applied to investment universes by shifting assets in response to prospective changes in the investment outlook. Of critical importance to the decision process are forecasts of key economic variables — business activity, corporate profits and dividends, interest rates and inflation — secured by surveying decision-makers as to their expectations. These short-term changes in expectations are analyzed to estimate their influence on the long-term assumptions underlying securities prices. The resulting implications for total investment return over a one-year time horizon, together with allowances for differences in risk premiums, provide the basis for decisions concerning the relative attractiveness of various investment universes.