Investment Management
"Compound interest is the eighth wonder of the world."
-- Albert Einstein
The Cookie Cutter Allocation Can Be Hard to Stomach
The standard conventional wisdom approach to investing utilized by big box advisors calls for a "strategic allocation" of assets. This can be as simple as the ubiquitous 60/40 portfolio (60 equities / 40 bonds), or as complicated as the advisor wants to make it - I routinely see tens if not hundreds of stocks in a portfolio. In any event, the conventional wisdom is to dollar cost average over time, buying and holding, and not selling in a bear market. The problem with this approach is two-fold:
Why Drawdown Management is Important
There’s a (wrong) point of view that drawdowns and volatility are irrelevant and only the terminal portfolio value matters. That’s easy to say when you view history from 30,000 feet up with the benefit of hindsight. It’s entirely different when you live a major market decline in real-time. Experienced investors know that significant portfolio losses cause investors to make bad decisions, usually at the worst possible moment by selling low (not to mention inducing stomach ulcers). By managing declines and controlling volatility, we ensure that investors stay in the game, making rational calm decisions during periods of market turmoil.
Even in a world devoid of human emotion, there are quantitative advantages of managing drawdowns, like increasing retirement withdrawal rates.
Costs Matter, and they Matter A Lot
The numbers may seem small, but the drag of higher costs and fees on overall terminal value of your funds over 30 years can be surprisingly significant. Our investment management fees are typically 50% lower than other advisors, and the investment vehicles we use (ETFs) are usually 8x-10x less expensive than the mutual funds we typically see used by other advisors.
"I don't outsource my thinking so I do things a different way. And the empirical literature indicates it is a better way." - Jon K. Hancock
Momentum Analysis
At Hancock Advisors we use "momentum analysis" that relies on the empirical fact that asset prices follow trend patterns which, once identified, can be exploited to provide performance. We use a diversified combination of momentum-based tactical allocation strategies that are applied to a universe of global asset classes represented by low-cost, liquid ETFs. On a monthly basis assets are filtered according to absolute momentum, then ranked according to relative momentum. Portfolio asset allocations are then dynamically rebalanced as indicated by our quantitative analysis. When conditions warrant, inverse ETFs may be utilized. Leveraged ETFs are put to good use in our "speculative risk" portfolio.
Look Globally for Trending Asset Classes
In our opinion, it is of paramount importance that an investment strategy 1) utilize a globally diverse set of assets such as US & international equities and bonds, commodities, real estate, sovereign Treasuries, etc. and 2) be able to adapt as markets change - moving to defensive assets when markets are falling, or into the most prospective assets when markets are rising – rather than sticking with a constant allocation per the conventional buy-and-pray approach.
High Expectations, but Past Performance is No Guarantee of Future Results
This strategy is expected to (1) keep losses small during bear markets, (2) somewhat underperform the S&P 500 during bull markets, and (3) and end up with superior performance over each complete bear-bull market cycle.
If you would like to discuss your asset allocation strategy with no obligation, feel free to schedule time here.
-- Albert Einstein
The Cookie Cutter Allocation Can Be Hard to Stomach
The standard conventional wisdom approach to investing utilized by big box advisors calls for a "strategic allocation" of assets. This can be as simple as the ubiquitous 60/40 portfolio (60 equities / 40 bonds), or as complicated as the advisor wants to make it - I routinely see tens if not hundreds of stocks in a portfolio. In any event, the conventional wisdom is to dollar cost average over time, buying and holding, and not selling in a bear market. The problem with this approach is two-fold:
- At any point in time, some asset class or classes aren't performing well and that creates a drag on your returns.
- Not selling means being subject to huge drawdowns like those seen in 2000-2002 and 2007-2012.
Why Drawdown Management is Important
There’s a (wrong) point of view that drawdowns and volatility are irrelevant and only the terminal portfolio value matters. That’s easy to say when you view history from 30,000 feet up with the benefit of hindsight. It’s entirely different when you live a major market decline in real-time. Experienced investors know that significant portfolio losses cause investors to make bad decisions, usually at the worst possible moment by selling low (not to mention inducing stomach ulcers). By managing declines and controlling volatility, we ensure that investors stay in the game, making rational calm decisions during periods of market turmoil.
Even in a world devoid of human emotion, there are quantitative advantages of managing drawdowns, like increasing retirement withdrawal rates.
Costs Matter, and they Matter A Lot
The numbers may seem small, but the drag of higher costs and fees on overall terminal value of your funds over 30 years can be surprisingly significant. Our investment management fees are typically 50% lower than other advisors, and the investment vehicles we use (ETFs) are usually 8x-10x less expensive than the mutual funds we typically see used by other advisors.
"I don't outsource my thinking so I do things a different way. And the empirical literature indicates it is a better way." - Jon K. Hancock
Momentum Analysis
At Hancock Advisors we use "momentum analysis" that relies on the empirical fact that asset prices follow trend patterns which, once identified, can be exploited to provide performance. We use a diversified combination of momentum-based tactical allocation strategies that are applied to a universe of global asset classes represented by low-cost, liquid ETFs. On a monthly basis assets are filtered according to absolute momentum, then ranked according to relative momentum. Portfolio asset allocations are then dynamically rebalanced as indicated by our quantitative analysis. When conditions warrant, inverse ETFs may be utilized. Leveraged ETFs are put to good use in our "speculative risk" portfolio.
Look Globally for Trending Asset Classes
In our opinion, it is of paramount importance that an investment strategy 1) utilize a globally diverse set of assets such as US & international equities and bonds, commodities, real estate, sovereign Treasuries, etc. and 2) be able to adapt as markets change - moving to defensive assets when markets are falling, or into the most prospective assets when markets are rising – rather than sticking with a constant allocation per the conventional buy-and-pray approach.
High Expectations, but Past Performance is No Guarantee of Future Results
This strategy is expected to (1) keep losses small during bear markets, (2) somewhat underperform the S&P 500 during bull markets, and (3) and end up with superior performance over each complete bear-bull market cycle.
If you would like to discuss your asset allocation strategy with no obligation, feel free to schedule time here.