In a recent paper published in the Journal Of Finance (Oct. 9, 2016), Lubos Pastor of the University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER), Robert F. Stambaugh of the University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER) and Lucian A. Taylor of The University of Pennsylvania - the Wharton School (all fellows with very impressive credentials) found that skilled active portfolio management out-performed passive investing.
More here: Active vs. Passive
One interesting conclusion that they made was that smaller managers had greater flexibility (to take advantage of "mis-pricing opportunities"), but that these highly skilled portfolio managers could charge more (for their skill).
So, as we have been suggesting since the inception of the High Rock Private Client Division, there is a place for tactical (active) portfolio management in a wealth management strategy as long as it is "highly skilled".
Sometimes it is nice to have academic support to back up your theory and model (to go along with the better than benchmark risk-adjusted returns).
Interestingly however, we have added a low-cost alternative: whereby you can get the same highly skilled money management at a significantly lower cost. And it also includes personal, tailored family financial planning (Wealth Forecast) with a Certified Financial Planner (CFP) professional.
Let me talk about the skill level, because it is high: Paul Tepsich and I were bond traders together at Merrill Lynch in the 90's (I actually started a little before he did, in the 80's), managing/trading billions of dollars of risk. Paul continued on trading as the head of of Canadian Credit (corporate bonds) and then he eventually built High Rock to manage money (4 funds) for Scotiabank. In an advisory role from 2000 to 2104, I saw that (the advisory) side of the business (and what other advisors do) was inefficient. Most advisors had to do what I had to do at the time: farm out client money to skilled active (like High Rock) and passive (ETF) managers to get exposure to all the important asset classes. But now we don't have to, we manage the great majority of our client money "in house" for our private clients, using our built-in synergies with our managed funds. What this means is that our clients are not paying fees on top of fees for the larger portion of their portfolio.
Because we have the skill set, experience and expertise to be a small, nimble "active" manager.
We are doing it better.
I challenge any and all financial institutions to come up with a better solution for clients (there isn't one). One where the people who are looking after you (and I mean really looking after you: not many portfolio managers talk directly to their clients) also have their money in the exact same portfolio models that you do.
We are breaking new ground and providing conflict of interest - free, disciplined investing and wealth management services, unparalleled in the investment industry.
It can be done: there is an alternative to the common mainstream, old-school style of passive investing and it doesn't have to cost 1.5-2% above the returns that you are getting and I am passionate about that alternative. Academics have studied and proven it and we have also shown how it works in real time.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist