Financial Services Institute: OneVoice 2014

Taking a new approach to portfolio diversification

Feb 4, 2014 @ 12:00 am

Runtime: 2:14

Envestnet's John Harris details how his firm has chosen to take a new approach to portfolio diversification in the wake of the financial crisis.

The Financial Services Institute's annual broker-dealer conference, taking place January 27-29 in Washington, D.C.

Video Transcript

We found that the last decade has been challenging for investors and investment advisers. And you've had these peaks and valleys that everyone's had to plow through and we wanted to-- as we role out to the financial crisis in 2008 and 2009, we wanted to make sure that we were building portfolios that could weather the storms in difficult markets and be competitive in that markets. And so, on a twist from modern portfolio, they were blending together strategies for diversification as opposed to just building allocated-- asset-allocated portfolios. And so, we'll bring a strategic manager in for the core of the portfolio, typically 50 or 60 percent of that allocation, and then blend in a tactical strategy for defensive purposes or alpha generation. And then in emerging asset class that we've been utilizing, more heavily recently are liquid alternatives, so a lot of great '40 Act mutual funds and ETFs that can be brought in that provide a low diversification-- high diversification, low correlation to portfolios to help diversify the overall strategy for the client. The strategy that we're designing today is actually-- It's going to have some components that are doing well and it's always gonna have some components that are performing poorly and that's the conversation you have to have with the client from the very beginning to make sure that they understand that the strategy is true diversification to different strategies. Again, strategic tactical and liquid alternatives. And so, with that, you know, coming out of 2008 and 2009, the tactical component was the most attractive piece from a performance standpoint. But as you roll in to the more recent five-year period, the strategic allocation has been much more productive. And so, it has tempered returns a little bit having that alternative piece and that tactical piece in the portfolio, but we really feel like clients will be positioned well if we have a drawdown, a 10 or 15 percent drawdown going forward and don't know exactly where markets are going, but there's always that potential that you could see some pullback and wanna make sure that clients are positioned well to address that.

0
Comments

What do you think?

InvestmentNews Video Channels

Recent Events

2014 Morningstar Investment Conference

Wednesday, Jun 18, 2014

2014 IAA Lobbying Day

Tuesday, Jun 10, 2014