Do you need a portfolio strategist


Do you need a portfolio strategist


Sports Analogy

The analogy of sport teams and investment teams who both want to win are similar in many ways.

Imagine that you own a professional football team. As the owner you bring the financial resources and set the organizations goals and objectives. Your aspirations as the owner are to win a national title. After all, you are going to finance this team, why not finance a wining team.

Your job, as the owner of course, is to build a successful team that has the best chance of achieving your goals. This means that you and your manager need to find the right coach that can put together the best players to win as many games as possible. This coach will also have to adapt his strategy depending on which opponents he will play against.

As an investor looking to build your own wining game plan, you are in the same position as the team owner. You bring the money to the table and set the objectives. Your advisor,  if you work with one, acts as the manager by providing the information you need to make smart decisions and by reporting the status of your teams development. If you invest independently you will also play the role of the manager. Either way, the coach that you will look for should be able to put together the best possible players in each position in order to maximize the full potential for your financial success.

Coach as Portfolio Strategist

In the investment world the coach is known as the portfolio strategist. As with a coach the portfolio strategist combines the right players [large cap, mid cap, international and domestic holdings], in the optimal combination for the greatest chance of success while adhering to goals, return objectives and risk tolerance constraints. Portfolio Strategists are an absolute key element that differentiates a good investor from a great investor. Large institutional investors like Exxon Oil, Teachers Pension Fund, University of Penn regularly employ the services of  portfolio strategist to attained the best chances of success.

Portfolio strategists have three key responsibilities that they undertake on behalf of their investors:

1] Selecting asset classes in which to invest

2] Determining and maintaining the optimal mixes of those asset classes.

3] Selecting and monitoring investment managers.

Portfolio strategist bring expertise and capabilities in three main areas:

1] Substantial research across global capital markets.

For example, UBS Global Asset Management employs 450 investment analysts in 15 different countries to conduct research on asset class, risk management, and asset allocation strategies.

2] Asset allocation and portfolio strategies.

Devotion of tremendous resources to the study of asset classes and how they react to changing market conditions so as to make decisions on when to buy or sell an asset class [Should we continue to hold real estate as an asset class?]

3] A disciplined investment process.

Investment policy committees comprised of CFA’s with decades of experience that follow a disciplined approach of value metrics.

Given the above factors, majority of investors believe that the power of an experienced portfolio strategist’s disciplined investment philosophy is enormous. By having systems in place to develop efficient portfolios and reduce volatility, these professionals are able to produce more predictable returns on a year to year basis.

Do you really need a dedicated portfolio strategist?

Let us examine the above question closely.

Research tells us that most affluent investors want a portfolio strategist [see Exhibit A-1].  Weather an individual delegates those duties to a Financial Advisor, a stock Broker or hire the services of a professional institutional strategist becomes the decision that most need to make.

Let’s review the components of a portfolio strategist;

  • Asset allocation
  • Assumptions of the future of asset class performance
  • Correlation of various asset classes
  • Using optimization technology effectively
  • Manager selection for each asset class
  • The need to react to changing market conditions

Should one agree that the above components contribute to a more efficient portfolio then you are in essence asking yourself, “who is most qualified to make these decisions?”

Exhibit [A-1]

Services the affluent want from advisors.

Asset allocation                    56.7%

Financial/estate planning       41.2%

Tax planning                          23.5%

All others                                4.3%

Source: Russ Alan Prince and Karen Maru File, Cultivating the Affluent [Institutional Investor, Inc., New York]

In the end, the implementation of a portfolio strategist becomes a important decision that will give you the greatest chance of success. Market research tells us that asset allocation is critical in the investment process. Some individual investors will find that they feel comfortable acting as their own strategist, wheras others will identify financial advisors with the focus and compacity to do a superior job. Most investors, however, are likely to be best served and maximize their chances of success by taking full advantage of benefits offered by dedicated portfolio strategists.     

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