Interestingly, after we finished our Tuesday client webinar (http://highrockcapital.ca/current-edition-of-the-weekly-webinar.html) I was sent a portfolio summary from a non-client, who will soon become a new client. I was blown away by the volatility I saw in this "buy and hold" mostly ETF, 60% equity / 40% fixed income strategy over the last 2 1/2 years:
The 1 year return is excellent and slightly better than the benchmark blended 60% ACWI (All Country World Index)/ 40% XBB (Canadian Bond Index) portfolio (after fees and costs) of 11.16%. However, as we suggested on our webinar, the buy and hold strategy, dug a big hole in this portfolio in the early part of 2016 and these poor folks had to sit and "ride it out" with a significant number of sleepless nights. The longer term return (2 1/2 years) has been a very mediocre 1.43%.
Comparing a more tactical and flexible 50% global equity model, 40% fixed income and 10% tactical model strategy of a High Rock client over this same period of time:
Certainly the 1 year return is not as substantial as the "buy and hold" strategy, but without all the volatility the 2 1/2 year return is a significantly better annualized average of 6.33%.
Why does the High Rock client sleep better?
Return per unit of risk:
The High Rock client portfolio has a lower risk measurement and a better return, so in an "apples to apples" comparison, the High Rock client portfolio has a much better return per unit of risk (risk-adjusted returns).
So folks, it is not about the 1 year return as much as it is a long-term strategy to try to reduce risk, maximize return and limit volatility to smooth out portfolio growth and limit sleepless nights.
And as you all well know, past performance is no guarantee of future performance, but as a portfolio management company with expertise in wealth management, portfolio construction and deep levels of research, we work darn hard to get our clients and ourselves the best possible risk-adjusted returns.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist