More Strategic "Strategic" Portfolios

Asset Allocation is the Primary Determinant of Long-Term Investment Returns

SEM does not disagree with this fundamental argument. We simply understand human nature & sought a better way to apply this academic research. For those that are used to utilizing a traditional "strategic" asset allocation (passive management), SEM’s AmeriGuard™ Portfolios are a nice stepping stone to a behavioral approach to investing. 

 

Most investment managers create a group of portfolios ranging from “Conservative” to “Aggressive” and then periodically rebalance back to the original asset allocation target. This is the very definition of “strategic” portfolio management. Other managers will then overweight “factors” such as small cap & value stocks based on academic studies showing long-term outperformance of those factors.  

SEM’s AmeriGuard™ Portfolios instead have an asset allocation range that is dictated by current market conditions. The overall average allocation will be comparable to traditional portfolios over the long-term, but the ability for SEM’s Portfolios to scale equity market exposure up or down as well as moving in and out of the same academic factors utilized by many should theoretically provide both a better return/risk ratio, but also a portfolio client’s may be more likely to stick with over the full market cycle.  

 

During bear markets human nature causes most investors to want to make some sort of adjustments to their portfolios. AmeriGuard™’s asset allocation adjustments may be enough to allow those feeling like a move is necessary to remain invested throughout the bear market. The following table compares a large investment manager’s portfolio stock allocation targets to the equivalent AmeriGuard™ Portfolio: 

The graph below illustrates the difference between the SEM Portfolios & the portfolios of a large traditional investment manager. Note over the last 15 years, which has included two bull markets and just one bear market how the traditional portfolios have underperformed even a passive, no fee blend of the S&P 500 and Multisector Bonds (the grey dashed line). AmeriGuard ™ with its flexible investment strategy shows the value of not being stuck with a static asset allocation through the full market cycle. Also shown on the chart are SEM’s Allocation Portfolios, which layer in our Tactical (daily managed) and Dynamic (monthly, economic models) with AmeriGuard™. [For more info on AmeriGuard ™ click here.]

If you are currently using a traditional approach to investment management, we would highly encourage you to take a look at SEM’s AmeriGuard™ portfolios. If you are currently utilizing A or C share funds for this type of allocation, shifting to AmeriGuard™ is a no-brainer. You not only will be able to illustrate your full value proposition by shifting from a commission product to a financial advisor fee, but you will get true fiduciary supervision of your clients’ accounts.  

How Does your strategic allocation stack up?

So far we’ve been able to run comparisons for Loring Ward/DFA allocations and the Principal SAM Portfolios.

If you would like us to run a comparison of your allocations, let us know

Return vs. Risk Disclaimer: Illustrative purposes only. Return & risk numbers are based on the hypothetical 15-year annualized returns using the combined allocations of SEM's Tactical, Dynamic, and AmeriGuard Models. The Risk % is an estimate of the annualized risk of each portfolio using Modified Value at Risk, a statistical measurement based on the historical distribution of returns. The Passive Allocations show the hypothetical results of a blend of stocks and bonds from 0 to 100%. The Loring Ward/DFA Portfolios are based on the asset allocations provided on LW’s website on 9/30/18. Results show the returns of the current holdings in the lowest cost share class. Both the LW & SEM Allocations assume all fees were deducted from the account, including a 1% Financial Advisor fee. There may be additional trading costs to implement the Loring Ward/DFA Portfolios. Past performance is not a guarantee of future results. 

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