New York (HedgeCo.Net) – To protect and maximize wealth, private wealth managers should focus on asset allocation, as results are primarily driven by that and not by manager performance, advised Duncan Rolph, Partner, Miracle Mile Advisors.
Dynamic asset allocation that can change with market conditions and client objectives is what works best in a volatile environment, he added
The largest contributor to long-term results is asset allocation and in a more volatile environment, it should be dynamic. An investment portfolio should be a work in progress that constantly seeks to optimize risk and return within the framework of an individual’s or family’s investment objectives.
Historically, investors have had a static approach with asset allocation. They would create an allocation for a client and use it over multiple years and market cycles. This line of thought has been called into question since 2008. With large swings in volatility that may span several years, the timing has becomes substantially more important to long-term results. Private wealth managers have to focus on creating an allocation that is dynamic, and that can change with market conditions and client objectives.
Investors are struggling to understand how to invest in what has become a very uncertain market. Capital markets have really globalized, which can upend certain asset classes very quickly. On top of that, the availability of investment vehicles has multiplied exponentially, making their jobs a lot more difficult. Many advisers have also relied heavily on more illiquid investments such as private equity, hedge funds, and real estate that have simply failed to perform in recent years as macro events have driven markets.
Fees are also becoming more important in today’s lower return environment and can account for a large chunk of a client’s expected returns which means advisers must take more risk to achieve a similar net return to an indexed portfolio.
ETFs also have many benefits. Unlike hedge funds or private equity funds, they are more liquid and can be more reactive to market conditions. That is a very simple but powerful benefit. They are also completely transparent. Investors need to know what they are getting themselves into, but with hedge funds they do not know what they have invested in until they look back 30 or 60 days.
ETFs are also tax efficient and fee efficient vehicles and tend to be much less expensive than their actively managed counterparts. They have also have performed exceptionally better with less than 30 per cent of the portfolio managers in the S&P 1500 outperforming the index over the past three years. I expect that trend to continue in the post-2008 environment.
Interview conducted by: Sarin Kouyoumdjian-Gurunlian, Press Manager, marcus evans, Summits Division.