It has been a busy week with all sorts of new and returning client activity. I think that this can be taken as a sign of things to come.
Old style, buy and hold, passive portfolio management is no longer cutting it for many investors because we are in a low growth, low return environment and our more tactical approach is gathering lots of interest.
Greater economic minds than mine agree:
The problem is, that getting those returns that many have enjoyed over the past 40 years or so have become somewhat elusive and to keep the levels of risk and volatility down in a passive portfolio approach is getting significantly more difficult and does not justify the returns (or lack thereof) anymore.
There are 2 options: 1) increase the level of risk that your passive approach will have (wider swings in gains and losses of portfolio value) or 2) take a more tactical approach and at the same time, reduce the potential risk and volatility.
What helps you sleep better at night?
If portfolio A with 5% cash generates a 2% total return (over the course of a year) or portfoliuo B with 25% cash (for defensive / opportunity purposes) generates the same 2% return over the same time frame, which has the stronger risk-adjusted return?
You guessed it, portfolio B!
So sometimes, having more cash, can in fact be strategic.
In time, how you utilize that cash (and when) is also strategic. So we are finding that folks who want to get the strongest risk-adjusted returns are finding their way to our style of thinking and investing.
I call it "good busy" (when I have less time for writing). But I am having lots of positive discussions around the style of more active portfolio management and how that is adding value to client portfolios. That is what people want these days and so they should, because the days of 7% average annual returns over multiple years may be behind us as the years of low growth / low return tend to be lingering.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist