Displaying items by tag: model portfolios

In RealMoney, Jim Collins, the founder and President of Excelsior Capital, discusses his DEATH model portfolio which bets against hype-fueled companies via short-selling and put options. 

The portfolio has a 74% gain over the past year, even managing to hold onto impressive gains despite recent strength in equities. It has a simple construction of 10 equally weighted positions. The guiding principle behind the company is to bet against shaky companies with lofty valuations. 

Some examples include Teladoc Health and SelectQuote which were among the best-performing stocks in 2020. However, this resulted in valuations that reached absurd levels. Collins believes that one factor in these stocks’ gains were inflows into Ark Investments’ family of funds as these were two of its largest holdings. Now, these stocks are falling back to Earth in terms of valuation and stock price, while Collins sees more downside. 

Collins believes that these short-selling opportunities emerge when analysts and fund managers stop applying basic principles of valuation to their holdings. He cites Peloton as an example given its massive valuation that was similar to a software company despite the company being in the business of selling exercise equipment which is historically a competitive, low-margin business. 

Finsum: Even with recent strength in equities, Jim Collins continues to see opportunity on the short-side. His DEATH model portfolio is constructed to bet against 10 of the most hype-fueled companies in the market. 

Talk about the quintessential utility player.

What can model portfolios do? The wind up and the pitch: by leveraging research, market insights and a deep well of experience, these offerings, crafted for clients by asset managers salted away time for advisors, allowing them steer the focus onto clients, according to etfdb.com.

That said, the questions hanging in the stratosphere, according to WisdomTree Investments research, is the way in which advisors, on behalf of clients, enter the terrain of model portfolios. Not only that, which clients will most enthusiastically embrace working with an advisor all in on the models.

“Smaller accounts” might be the way some advisors kick things off – or they might do so with tax exempt accounts. 

Meantime, scoop de jour: investing’s a tough enough nut to crack. Meaning you need every advantage you can leverage.

For example, socking money into a model portfolio means you’ll be packing the insights of indust4ry experts who not only know their stuff – but, heck, in all likelihood, they designed them, according to smartasset.com.

After all, prior to tabbing the assets for each portfolio, financial advisors and investment managers, for the most part, tap their analysis as professionals and deep will of research to generate investment strategies that show that detail’s king. 

The tickets are going fast.

Must be a rock star in the house. Though not demanding bowls brimming exclusively with red M&Ms, of late, model portfolios have become all that and more, at least as far as some financial professionals are concerned, according to tifin.com

And, hey, they’re onto something. Besides salting away mucho time for investors, giving them all the opportunity to serve more clients with stepped up efficiency, they also play a pivotal role in their ability to ensure investment strategies remain on track throughout the client bases. What’s more, they make sure overexposure to any particular investment or asset class doesn’t burgeon into an issue.

Target risk models are a staple among a plethora of model portfolio types. Among several attributes, they’re designed to align with the goals of investors, who have specific risk tolerances. The range stretches from conservative to aggressive.

So, how popular are they? As of March of last year, assets following model portfolios hardly sat on their hands; they parachuted to $$349 billion, according to Morningstar, reported smartasset.com. That’s an approximately 22% bounce between June 30, 2021, and March 31, 2022.

Many RIAs are testing out new pricing models and moving away from the traditional practice of taking a cut of assets under management especially for placements into alternative investments. In a piece for AdvisorHub, Suman Bhattacharyya covers some examples.

Overall, there is increasing pushback from clients about paying management fees especially when the market is falling. Additionally, these annual fees can compound over time and become a significant amount especially for long-term clients. 

These concerns are magnified in years with lower or negative returns. Some advisors are choosing to take a cut on performance, between 10% and 20%, to align clients and advisors’ interests. Others are moving to a fixed-fee model which means either billing by the hour, charging a subscription or a fee per project.

According to some, 2022 which saw negative returns for stocks and bonds is simply accelerating what had been a developing trend. Despite these changes, 82% of revenue for RIAs come from fees on total assets under management. 

Therefore, RIAs reliant on these fees for their business should consider alternative models or at least prepare for conversations with clients about the matter. 

Finsum: The vast majority of RIAs are reliant on fees generated by total assets under management. However, many clients are electing to move away from this model. 

In the Financial Times, David Thorpe covered comments from John Roe, the head of multi-asset investing at Legal and General Investment Management, about why investors need to move past the 60/40 portfolio. Until recently, the 60/40 model portfolio was considered the gold standard based on the notion that stocks and bonds are inversely correlated.

According to Roe, this concept doesn’t work in higher-rate and higher inflation environments like the 70s. He added that "The idea is that if a real recession happens, then equities fall in value but bonds rise in value because the expectation is that inflation would be falling. But the reality is that in the 70s and the 80s, when we had a recession but inflation was also quite high, that inverse correlation didn’t always happen.”

He advises investors to also have a healthy allocation to more asset classes including real estate, alternatives, and emerging markets. These investments would outperform if inflation proves to be entrenched. As 2022 demonstrated, both stocks and bonds are liable to underperform when inflation surprises to the upside. 

Finsum: The 60/40 portfolio has been considered the gold standard for investors. However, this is being reconsidered especially as it has shown to underperform in periods of higher inflation.