Portfolio Building

We are roughly two months removed from seeing US Equity make its way back to the number one ranked asset class in the Nasdaq Dorsey Wright DALI (Dynamic Asset Level Investing) tool. This is the eighth time going back to 2000 that US Equity has been the number one ranked asset class.

In this presentation, our Equity Strategist Team examines why client goals guide effective core portfolio construction and how ETFs can serve as essential building blocks to help clients achieve their objectives. Factor-based strategies, in particular, provide exposure to the long-term drivers of returns, and they are now available in the cost-effective and tax-efficient ETF wrapper. Join us as we examine how factor-based ETFs can be used in combination to address clients’ specific risk, return and income objectives.

Investors should consider many angles when evaluating what active managers can offer through a global crisis and an indefinite period of uncertainty.

GSAM has analyzed the asset allocation of thousands of advisor managed portfolios over the years and found that many of those portfolios cluster closely together in terms of expected return and risk characteristics. Model portfolios may help to achieve similar outcomes to what advisors are already getting while also helping advisors realign their time, reduce regulatory and due diligence burdens, establish business continuity, and leverage institutional expertise. Model portfolios, like the Goldman Sachs S&P G-MAPs, maybe a tool to achieve the same results in a simpler fashion.

The S&P 500 SPX and Nasdaq NASD have recently hit a series of fresh all-time highs and the Dow DJIA now sits less than 2% off of its all-time high which has many people wondering if the market is overbought and due for a correction.

A basket of emerging market bonds may offer the same appeal investors have long sought from U.S. Treasuries.

One of the enduring effects of the pandemic will be the structural changes it inflicts on the economy. Some industries – hotels, travel, restaurants – may be obliterated or radically changed. Others, like those that support the podcasting technology I am using now, will be at the forefront of accelerated growth. With the advent of thematic ETFs, investors can position themselves for this structurally evolving economy. My guest today, Jon Maier is here to discuss the role of thematic ETFs in your clients’ portfolios.

The S&P 500 SPX and Nasdaq NASD have recently hit a series of fresh all-time highs and the Dow DJIA now sits less than 2% off of its all-time high which has many people wondering if the market is overbought and due for a correction.

Evaluating the unusual characteristics of the profitability factor

September has historically been one of the weakest months for the S&P 500. The momentum factor, on the other hand, has historically been very strong in September.

The Georgetown professor and former PIMCO economist says democracy will have failed if the strategy continues working for decades.

The Absolute Capital Opportunities Fund (CAPOX) uses a flexible approach to value investing. It is sub-advised by a team at Chicago-based Kovitz, led by Mark C. Rosland and Joel D. Hirsh. As of May 31st, 2020 its cumulative return was 29.49% versus 1.03% for the HFRX equity hedge index.

Factor-driven investing, while highly popular among equity investors, has not been as widely adopted in the bond market. But research shows that a factor-based approach to bond investing is superior to attempting to identify top-performing active bond managers.

Everybody is wondering how the stock market can be so high while the U.S. economy is so low. But you don’t hear the same rumbling concerns about the bond market – even though something very similar to ultra-high P/Es is going on in the fixed income side of your portfolio.

Broader equity market returns serve as a poor proxy for an average stock’s return as well as that of a buy-and-hold strategy’s expected outcomes. A much larger proportion of all stocks contribute negatively to overall market’s lifetime returns.

Gold has been on a tear over the last year, rising 32% while global equities have languished. A common objective of gold is to hedge against some type of risk. This paper shows how gold can reduce downside risk during big down markets, but isn’t the most effective inflation hedge.

The odds of a stagflation environment are continuing to rise in our opinion. Over the past few weeks/months we have made this view clear by looking at both sides of the coin, growth and inflation. Over that time, the evidence continued to mount in favor of our view.

Care to guess how well the monthly CAPE predicted future 10-year returns between January 1995 and May 2020?

In addition to its tragic human toll, COVID-19 triggered the sharpest recession in recent history, and efforts to control its spread have transformed the way we work, the way we shop and how we connect with others. We think these changes will last awhile—with implications for asset allocation.

This review will explore why passive investing may not provide the bargain most advisors think they are getting for their clients. This is especially important as most managers have underperformed their benchmark YTD with such cyclical market performance. Although difficult to find, investors should still seek out skilled managers that stick to quality investment philosophy and process.

It identified 244 companies during the 2020 annual proxy season that weren’t doing enough to either prepare their businesses for a warming planet or inform investors about the climate-change risks.

The economic calendar is modest, and many market participants will probably extend their long weekends. The ISM Non-Manufacturing Index and jobless claims data will be the most important.

As you read this, the Financial Planning Association is engaged in one of the most consequential initiatives in its history, and for some reason this important program is getting zero publicity.

After a decade of steady growth and rising asset prices, economies and financial markets were rocked by the COVID-19 pandemic. The global health crisis forced most governments to lock down their communities, halting economic activity almost overnight and causing financial markets to reprice lower at an unprecedented speed.

Admiral James Bond Stockdale was the highest-ranking United States military officer in the “Hanoi Hilton” POW camp during the Vietnam War. His jet was shot down in 1965, and after parachuting into a small village, he was taken as a prisoner of war.

In a post-coronavirus investment world, Jeff argues that investors should be rethinking the role of fixed income in portfolio construction and ask themselves if they are at risk of investing without a parachute?

Rick Rieder, Russ Brownback and Trevor Slaven contend that in the tug-of-war between the considerable economic damage stemming from the coronavirus and subsequent lockdowns, and the fiscal and monetary policy responses put in place, the latter factor is being underestimated by markets. Further, the instruments used by investors in previous years won’t be what’s required for the time ahead.

An overwhelming majority of investors would be open to use so-called model portfolios to guide their allocation decisions -- if only financial advisors did a better job of explaining them.

Over the last several years, we have recognized what has been going on with negative or near negative interest rates in Japan, and is now bleeding into parts of Europe. We never imagined that those troubles from afar would be any more than banter amongst economists and financial doomsdayers. The reality of those environments have now made it to the shores of the good ol’ USA.

New research shows that companies that adhere to positive ESG principles have lower costs of capital, higher valuations, are less vulnerable to systemic risks and are more profitable. But beware; those higher valuations translate to lower expected returns for investors.

Rick Rieder and Jacob Caplain contend that with profound uncertainties still present in the economy and markets, and the dislocations witnessed in many market segments in the past couple months, investors don’t need to resort to lower-quality assets. In fact, to achieve potentially attractive returns, higher-quality spread assets can serve quite well.

For those who believe that capital markets should be free from undue government interference, the Fed’s adoption of expansive programs raises the question of whether it has gone too far.

The Fama–French value factor, and value investing in general, has suffered an extraordinarily long 13.3 years of underperformance relative to the growth investing style. The current drawdown has been by far the longest as well as the largest since July 1963. Arnott, Harvey, Kalesnik, and Linnainmaa examine the potential causes of value’s underperformance and provide estimates of value’s performance relative to growth’s performance under different revaluation scenarios over the next decade.

The First Eagle Overseas fund (SGOVX) has an exceptional 27-year history. Since its inception, it has returned 9.15% versus 4.03% for the MSCI EAFE index. It was originally managed by the legendary Jean-Marie Eveillard. I spoke with its current management team about how the fund has performed during the coronavirus crisis and why financial professionals should look to diversify outside the U.S. markets.

Russell Investments has long held that it is possible to create investment value while incorporating values into the decision-making. In this blog post, we continue on that theme and highlight a small collection of securities that demonstrate doing well while doing good.

Low Price to Something investing, or “value” investing as it has come to be known since Fama/French introduced the “value” factor has been a disaster for investors over the past 10 plus years.

The spread of the COVID-19 virus has blindsided conventional risk models. By understanding what went wrong, investors can develop a more forward-looking approach to risk management that considers multiple scenarios for a highly uncertain market environment.

By contrasting features of Markowitz 1952 with Markowitz 1991, we offer an evaluation matrix as a tool that challenges the suitability of the advisory industry’s application of MPT investing for an individual’s portfolio.

Despite the important role financial advisors play in the design of client portfolios, we know very little about how those portfolios are constructed. New research shows, however, that the model portfolios used by advisors suffer from a number of structural inefficiencies.

The economic calendar includes several important releases, but few reflect the COVID19 effects. Everyone knows the economic news is dismal. Just how dismal does not seem to matter.

Rick Rieder, Russ Brownback and Trevor Slaven contend that even as markets are gripped with the trauma of wild swings, and continued uncertainties, the seeds of future investment opportunity are being sown.

The last decade has been a painful one for investors who believe in a factor-based approach to investing and have stuck with those factors that have historically performed well, namely the value factor. But a breed of products have avoided the plight. ETFs that were designed to be nimble and allocate across a range of factors have not suffered the same performance deficit.

The last decade has been a painful one for investors who believe in a factor-based approach to investing and have stuck with those factors that historically performed well – namely the value factor, which has severely underperformed growth over those 10 years. But a breed of products have avoided that plight. Funds and ETFs that have were designed to be nimble and allocate across a range of factors have not suffered the same performance deficit.

The bear market is challenging defined contribution (DC) plan sponsors to reinforce timeless investing principles while also conveying new rules that bring relief to participants. Good communication practices are a key ingredient to achieving success in both these areas.

It’s been said before, but the truth appears to be this crisis is very different than others we’ve experienced. It's not an asset bubble tied to exuberance, greed, default, fraud or mismanagement of a country, currencies or anything else in our manmade economic system.

With the most dramatic part of the storm hopefully over, the question is whether the market has bottomed. When is the recovery? Before we get into how to visualize market recovery, let’s offer some perspective on the recovery of the emotional trauma.

There are three key areas where the allocation requirements of passive fixed-income vehicles have an impact on the market.

The market’s response to the coronavirus had a stark effect on portfolio values. Less apparent, but more important, was how it reduced the probability that your financial plans will succeed in reaching your clients’ financial goals. Here’s an example of how devastating that may be and how you should communicate this to clients.

Even the most rational clients are subject to emotions, especially during the current coronavirus outbreak, when the threat is both financial and physical.

Equity markets have bounced around rather dramatically in recent weeks (up and down) as investors are trying to get a grasp of the impacts of Covid-19 (aka Coronavirus). While there will clearly be economic softening from Covid-19, the base case is that it will be transitory.

Responsible investing has gathered enough momentum in recent years to reach the mainstream. What is less clear is how far along global institutional investors are in the process of integrating environmental, social and governance (ESG) principles into their investment decisions.

When it comes to investing it’s never different this time; nor, however, is it ever the same. This difficult-to-navigate paradox creates a scarcity of longevity. Today’s persistently low yield environment has upped the ante and put many marquis names out of business.

The Wall Street Journal criticized ESG portfolios earlier this month for being dominated by big technology stocks. But we think technology stocks are integral to a responsible investing agenda when chosen as part of a well-defined process targeting companies that foster environmental, social and governance (ESG) improvements.

Like the three little pigs building their houses, financial advisors have many choices of how they will build their books of business. Many of the most successful advisors embrace fee-only wealth management. In this blog post, we put some numbers to these theories.

Private assets are popular today as investors are reaching out on the risk spectrum for return. This behavior is always interesting to us since history shows it often leads to losses. We wanted to dig into private markets and see if excess returns are easily earned.

It is probably hard to remember after a week or so of coronavirus fears, but during Q4 2019, “risk” assets once again outperformed “haven” assets. This was after two quarters of “haven” asset outperformance.

Unlike the weather, where predicting over the long term has much more error than predicting for tomorrow, we have a better idea of probable outcomes for how markets will perform in the 2020s than how they will do in 2020.

J.P. Morgan annually publishes long-term capital market assumptions. Using its 2020 edition, here are a selection of optimal portfolios that can be used by investors of different risk affinities.

Among the biggest contributors to the bitcoin rally is the hope that 2020 could finally see institutional investors move into the digital field en masse, prompted by growing client demand and more attractive ways to get exposure.

A few months ago, we published a paper called Institutional investor best practice by 2025. In this paper, we addressed how investors will need to fundamentally change how they approach capturing opportunities, mitigating risks and managing costs within their investment portfolios to set themselves up for success in 2025 and beyond.

A few months ago, I wrote about the mechanics of value investing and the many decisions that go into building value portfolios. Many investors believe that all value-based strategies will produce a similar performance. But in reality, the many portfolio construction decisions that value managers make...

Quarterly commentary giving an overview of the markets and the importance of having and implementing a strategy when investing in the markets.

Model portfolios are built on the premise that asset allocation drives long term portfolio returns. Alternative strategies like hedge funds can provide diversification benefits that may improve long-term returns and reduce drawdowns.

A recent study by New York Life highlighted rising interest among institutional investors in alternative ETFs, which can help to reduce fees and offer better liquidity than traditional hedge funds. ETFs have other benefits as well: transparency, flexibility to efficiently increase and decrease target allocations, reduced manager oversight, and reporting simplicity.

Factor-driven investing, while highly popular among equity investors, has not been widely adopted in the bond market. But new research shows how to construct highly efficient fixed-income portfolios using factors, as well as the ongoing importance of reducing expenses.

We aim to support wealth management firms, advisors, and investors as they assess portfolio strategy and navigate the shifting trends we face in the new year.

We have reached a stage in the cycle where you need to think out of the box in order to deliver respectable returns. Investing like most of us have done in the great bull market will not deliver returns anywhere near the levels we have enjoyed over the past 35-40 years. This month’s Absolute Return Letter offers a solution.

Models can help advisors streamline portfolio management while retaining the level of discretion appropriate for their practice.

Private markets remain a key source of income for institutional portfolios, but late-cycle concerns demand a thoughtful approach to opportunities and risks.

RIA investment platforms – specifically the vehicles and tools they use to manage client portfolios – are about to undergo the most profound change in a generation. With the race to zero for trading stocks, mutual funds are becoming outdated. Customized portfolios of individual stocks will be the winner.

As investors, both institutional and individual, look for ways to use their money in a more impactful way, the United Nations’ Sustainable Development Goals (SDGs) have emerged as a relatable tool. However, Raymond Jacobs and John Levy from Franklin Real Asset Advisors warn the SDGs are vulnerable to misuse, misrepresentation and dilution.

The evidence is overwhelming that automation has positively impacted total factor productivity (TFP) for years, i.e. GDP growth continues to benefit from the digital revolution despite the fact GDP growth is rather pedestrian these years.

Our Income to Outcome framework seeks to deliver a simpler, more intuitive approach to investing for retirement.

I have always loved Boston. My first recollection of the city was when my parents and I used to fly into it spend a night, or two, and then head for our house in Nantucket. Boy, I wish I still had that house. In later life we use to visit the city to see portfolio managers with Fidelity of particular interest.

Both endeavors are driven by statistical analysis. Explore three different ways that managers can build their ‘teams.’