As an advisor, you are faced with all kinds of client portfolios – typically portfolios where funds have been selected haphazardly over time due to their good past performance and the aim of the total portfolio has been lost in translation. In this article we would like show advisors how to recognise portfolios that have been well-designed with funds playing clearly-defined roles and blending beautifully together. In particular, after reading this article, you should be able to articulate:
At Analytics all sorts of portfolios cross our desks. Portfolios that have been well-designed with funds playing clearly-defined roles and blending beautifully together…and then also portfolios where funds have been selected haphazardly over time due to their good past performance and the aim of the total portfolio has been lost in translation.
There is no excuse for not designing portfolios scientifically anymore. After all, the blueprint for designing portfolios was developed ages ago when Harry Markowitz wrote his seminal paper entitled “Portfolio Selection” in the Journal of Finance March 1952 edition. His article showed that diversifying across uncorrelated assets was a way to invest optimally while reducing risk. Consider the following quote by the Father of Modern Portfolio Theory, Harry Markowitz:
“A good portfolio is more than a long list of good stocks and bonds. It is a balanced whole, providing the investor with protections and opportunities with respect to a wide range of contingencies.”
At Analytics we design portfolios with the above quote in mind – ensuring that investment portfolios are constructed that include uncorrelated funds – an optimal combination of conservative satellite, core and aggressive satellite funds which should provide a consistent return profile in different market environments.
Summary of market returns:
12 months ending June 2020:
Macro economic indicators published during July confirmed what investment markets pointed to in the middle of March – a significant reduction in global economic output. The next question is, of course, how quickly economies will recover after the global lockdown in the second quarter, as this will have a significant impact on the profitability of companies around the world. The sustainability of the recovery in equity markets will be tested as more information about economic activity is published in the coming weeks and months.