Posted on : By : PPD1962 Posted in : Asset Allocation|Cash|Debt|Derivatives|Equities

AA: is it ok to have only two asset classes in your portfolio?

QUESTION:  I saw this article by JP Morgan’s highly rated analyst.  It says people only need two asset classes: global equities and a domestic corporate bond portfolio.  Can this be correct?

ANSWER: Yes, and depending on the overall size of your portfolio and your risk aversion to large drawdowns you might just be able get away with one asset class (global equities).  Under both scenarios, you will need some allocated to cash for transaction and costs, so technically it will be two or three asset classes.

The JPM analyst quite succinctly explains the global equities and local bond pairing, but I will focus on a global equities only allocation.

Many years ago, I was given about 100 portfolios of  HNW individuals  to manage.  The most aggressive was an all equities (no bonds, quasi bonds or REITS, and minimal cash) but what struck me was the age of the HNW investor.  It was a +70-year old woman.  After speaking to a few people it was obvious why the portfolio was constructed the way it was.

Firstly, she had been investing for a long time and had been through many drawdowns on her portfolio (Black Monday, GFC, etc).  She understood the magnitude of a very large drawdown in percentage terms, but her account balance was large effort that those drawdowns weren’t going to affect her lifestyle (travel, buying gifts for grandchildren, etc).

Secondly, she wanted to leave the largest possible estate and legacy for her family, so was willing to have the most aggressive large cap equities portfolio she could.

So with a single asset class portfolio she achieved her short term plans and long term goals.  The traditional advice model for her would have resulted in radically different portfolio and outcomes, with a large allocation to bonds and low risk assets.  The message, using the Monty Python line, is that we are all individuals and portfolio construction should be bespoke to you!

Finally, complexity might help someone sell financial products and service, but for the investor simple and low fees can deliver a better outcome.

Contact TurnerStreet if you wish to buy our current asset allocation recommendation (we do cash and equity only allocations for our wholesale clients), and the list of the stocks TurnerStreet would buy for a typical wholesale client, or if you would like TurnerStreet to manage your equities and derivatives portfolio.

IMPORTANT: This Q&A is general product advice for wholesale or sophisticated investors, and NOT suitable for retail investors.  Retail investors should seek advice specific to their circumstances and not rely upon general product advice written for other types of investors.  Retail investors acting like wholesale/sophisticated investor are likely to experience inappropriate and/or excessive risk for their circumstances, and unacceptable losses.
Posted on : By : PPD1962 Posted in : Equities

Equities: if everyone is going passive, why shouldn’t I?

QUESTION:  I saw this article in The Economist.  If everyone is going passive equities, why shouldn’t I ditch my active equities manager?

ANSWER: You probably should ditch your existing active equities manager, but don’t put the money into passive funds.

Firstly, as background, let’s not pretend that traditional active managers were not the catalyst themselves for the growth of passive investing.  Active managers were constructing portfolios with poor return/risk characteristics, and charging too much. Their objective was raising funds under management (“FUM”) from investors which required top decile performance….do you realise how much risk you need to take to get to top decile in any quarter, and is it any surprise that the volatility will mean bottom decile performance regularly too?

Family offices and HNW individuals will eventualy realise that active management can be done differently, therefore avoiding the perils of passive fund investing, and the poor return/risk characteristics of traditional active managers.

You are invited to join the family office of TurnerStreet’s founders in a new form active equities management where the risks match the returns. The objective is not to shoot the lights out, but to do a little better than the index over the long haul.

Contact TurnerStreet if you wish to buy our current asset allocation recommendation (we do cash and equity only allocations for our wholesale clients), and the list of the stocks TurnerStreet would buy for a typical wholesale client, or if you would like TurnerStreet to manage your equities and derivatives portfolio.

IMPORTANT: This Q&A is general product advice for wholesale or sophisticated investors, and NOT suitable for retail investors.  Retail investors should seek advice specific to their circumstances and not rely upon general product advice written for other types of investors.  Retail investors acting like wholesale/sophisticated investor are likely to experience inappropriate and/or excessive risk for their circumstances, and unacceptable losses.