Financial advisers looking for ways to guide client portfolios through the kind of uncertainty that has descended upon the global financial markets need to look no further than a basic endowment model.
The benefits of diversity layered over a long-term investment approach that are trademarks of most endowment and foundation portfolios typically outperform shorter-term and more aggressive strategies.
But, so far this year, the endowment model, as illustrated by the Endowment Index, has become difficult to ignore.
For the quarter ending June 30, the Endowment Index, calculated by Nasdaq OMX, gained 15.4% on a total return basis. That compares to a 12.4% gain for a globally diversified portfolio of 60% stocks and 40% bonds.
The S&P 500 Index gained over 20% in the second quarter, but it would be difficult to imagine an investment portfolio 100% allocated to the S&P 500.
A key component to the endowment model is diversification, which showed 22 of the index’s 24 asset categories posting gains in the second quarter.
Top performers during the quarter were commodity oil and gas, and master limited partnerships, which gained 47.6% and 46.8%, respectively.
[Interested in even more ESG news? Check out InvestmentNews’ ESG Clarity US]
In fact, 15 asset categories, ranging from real assets like timber to emerging markets, gained double digits during what was an unusually strong quarter.
The lone negative performers in the endowment index were Treasury bills with a 0.01% decline and managed futures, which lost 3.5%.
“The performance of the index highlights the benefits of diversification,” said Todd Rosenbluth, director of mutual fund and ETF research at CFRA.
“While U.S. equities bounced back in the second quarter and U.S. fixed income largely held steady, investors would have been aided by exposure to other investment styles,” he added. “The addition of multiple styles provides balance because winners in one quarter might not repeat the success in the next quarter.”
Vance Barse, founder of Your Dedicated Fiduciary, pointed out that diversification has never been easier with the advent and steady influx of customized exchange-traded fund strategies.
“Given the rise in popularity of ETF-based investing, it’s no surprise to see ETFs in this arena, but it’s important to understand what’s under the hood when it comes to alternative investments,” he said.
Even if most advisers are already allocating beyond basic 60-40 portfolios, the endowment model is difficult to achieve for smaller account balances, but it can still represent an aspiration.
“Endowments usually create very long-term asset allocation plans and generally stick to them,” said Paul Schatz, president of Heritage Capital.
“While 60-40 is a common benchmark, it is definitely flawed for endowments as so many of them have become much more granular in their process and use a whole host of private and more illiquid investments like private equity and venture capital,” he added.
The "Crypto Mom" departure would leave the SEC commission with just two members and no Democratic commissioners on the panel.
IFP Securities’ owner, Bill Hamm, has a long-term plan for the firm and its 279 financial advisors.
Meanwhile, a Osaic and Envestnet ink a new adaptive wealthtech partnership to better support the firm's 10,000-plus advisors, and RIA-focused VastAdvisor unveils native integrations with leading CRMs.
A former Alabama investment advisor and ex-Kestra rep has been permanently barred and penalized after clients he promised to protect got caught in a $2.6 million fraud.
As more active strategies get packaged into the ETF wrapper, advisors and investors have to look beyond expense ratios as the benchmark for value.
Wellington explores how multi strategy hedge funds may enhance diversification
As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management
