Articles

Enhancing Our Asset Allocation Models

Victoria Collins, Ph. D, CFP, Executive Vice President/Principal

April 1, 2009

As we end the first quarter of 2009, we anticipate the economy will begin to stabilize and markets to improve when the vast amounts of policies, bailouts and liquidity measures are fully implemented. Financial assets appear to have priced in enough damage so that sustained losses over multi-year periods are unlikely. We believe we are well positioned to meet the remaining challenges and ready for recovery when it comes.

What we have learned from 2008 and first quarter 2009 is the traditional "Modern Portfolio Theory" (now 60 years old) may not address, as fully as we would like, the realities of the new investment world. We are living in an increasingly complex and constantly evolving global macro-economy. Due to this new investment arena, asset classes tend to move together significantly more often than in the past, thereby reducing some of the benefits of diversification across major asset classes such as U.S. and international equities and bonds.

In this evolving financial landscape, we want to share with you our enhanced portfolio strategies in three key ways: Improved access to additional asset classes, greater emphasis on tactical asset allocation over static allocation and more forward-looking approach to design – one that emphasizes diversification across global risk factors not just asset classes.

After extensive research since June of 2008, we are using sophisticated data on expected returns and allocation modeling as well as investment categories previously available only to the largest institutional investors. Not only were alternative investments inaccessible, they were cost prohibitive for the average client and generally illiquid. Adding these asset classes in mutual fund or sub-advisor format provides you with more diversification, cost effectiveness and maintains the liquidity that you desire. This type of portfolio is built around the "endowment model," which has a long history with ultra wealthy families and with institutions such as universities and foundations. We will be talking more about these changes and enhancements in our next client conference call early April – watch for an email announcement.

It’s that time again for year-to-date reports and we’ll be sending them by mid-April. We’d like to set a time to review your portfolio and your financial needs and objectives either in person or by phone if you've not done so recently.

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