What stands out the most when you look at the slide above?
1 Year = 15.40%
Now who wouldn't want that return for their portfolio?
That is the absolute return or (total return) of the All Country World Index (ACWI) ETF for the 1 year period (according to Bloomberg TRA, daily basis). A broadly diversified index of global stocks, which is about 50% US equities, 8% Japanese equities, 7% UK equities and 3% each of Canada, China, France, Germany
The next question you need to ask yourself is: what sort of risk am I prepared to take to get that return?
The 1 year period from March 31, 2015 to March 31, 2016 total return for ACWI was -4.28%.
That gives you a 2 year total return (Bloomberg TRA, March 31, 2015 to March 31, 2017 on a daily basis) of 5.09% and 2.97% on a monthly basis (table below).
The return per unit of risk (risk-adjusted return) over the 2 year period (table below) on a monthly basis was 0.60 times.
A "gambler" might look at the absolute return and say to himself: "I want some of that!!" And of course that is what drove retail investing in the first quarter of this year. "Gambler's" chasing returns, throwing caution to the wind.
A "steward" of his family's wealth, would be more circumspect and approach investing with a longer-term outlook and a more balanced portfolio with a fixed income component for safety (even though bond returns have been a little less than impactful over the last couple of years):
A "steward" of his family's wealth who came to High Rock 2 years ago when we started our private client division would have experienced a balanced portfolio with a tactical option that has had significantly less risk, but very strong returns per unit of risk taken:
Even compared to a "buy and hold" 60/40 portfolio over the same period, the actual High Rock private client portfolio (after adjusting for fees) outperformed on an absolute basis and on a risk-adjusted basis (return per unit of risk taken). Making the case for the tactical option in a portfolio.
If you want to gamble with your family's wealth, it is your money, do as you wish. If you want to invest to maximize your long-term growth and minimize the downside risk, you might wish to give our tactical option a thought or two.
We will discuss comparative returns, the global economy and financial markets on our weekly webinar with our clients today. We will post this webinar on our website at about 5pm EDT:
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist