White Papers

Active-Passive

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Alternative Investments- General

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White Paper- White Paper_Alternative Investments-Its Time To Pay Attention.  Currently at US$10 trillion, global assets in alternative investments are expected to grow to $18.1 trillion in 2020In this April 2015 white paper, Strategy& discusses the reasons behind growth in the alternatives space and interest in alternatives from the retail space, the increasing use of alternatives by advisers, and the opportunities and challenges that this growth has for asset managers.

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Asset Allocation

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White Paper: The Role of Multi-Asset Solutions of Indexing by DJ Indices.  Three evolving trends in asset allocation processes include (1)  a shift from Active to Passive investing through the use of ETFs, especially to non traditional asset classes (2) capturing systematic risk through alternative or smart-beta strategies (3) shift from investment products to investment solutions that match client needs.  The paper then moves on to discuss case studies for outcome-oriented solutions, including risk parity, inflation protection, income generation.  For example, risk parity, a strategy that allocates according to the risk levels a particular asset class contributes to a portfolio (rather than by a class weighting, equal weighting, etc.)  According to the paper, risk parity portfolios have outperformed traditional 60-40 stock-bond portfolios equal-weighted and volatility weighted strategies, across 5-, 10-, and 20-year time frames with lower risk, a higher Sharpe ratio, and a lower maximum draw-down across the three time periods.  You can download the entire paper from the S&P website.

Strategic-Tactical

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• Strategic asset allocation calls for setting target allocations and then periodically rebalancing the portfolio back to those targets as investment returns skew the original allocation percentages. The concept is akin to a “buy and hold” strategy, rather than an active trading approach. Of course, the strategic asset allocation targets may change over time as the client’s goals and needs change and as the time horizon for major events such as retirement and college funding grow shorter.
• Tactical asset allocation allows for a range of percentages in each asset class (such as Stocks = 40-50%). These are minimum and maximum acceptable percentages that permit the investor to take advantage of market conditions within these parameters. Thus, a minor form of market timing is possible, since the investor can move to the higher end of the range when stocks are expected to do better and to the lower end when the economic outlook is bleak.

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UMA vs. SMA

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An UMA is an investment vehicle that can hold multiple asset classes, styles and products in a single account. An UMA offers a diversified, tax-aware, multi-asset portfolio in a single account whose contents are designed to meet our client’s specific investment needs. We offer our clients access to institutional quality money managers at greatly reduced minimums, with streamlined paperwork and reasonable costs.

UMA models can be constructed using best-of-breed Separately Managed Accounts, Third Party Strategists, ETFs, Mutual Funds or a combination.

The main client benefits of UMAs can be summarized as follows:

• Single statement from a single source
• Combine several asset types in a single portfolio
• Access leading money managers with low minimums
• Avoid wash sales.
• Rebalance across managers and asset types
• Harvest gains and losses for tax management
• Social screening

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Fundamental Indexing/Smart Beta/Strategic Beta

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Fundamental Indexing is a process in which indexes are created through different methodologies other than the traditional cap-weighted or equal-weighted style.  There are different names which this process is called, including Smart Beta, Strategic Beta, Enhanced Indexing, Alternative Beta, and others.   Below are links to resources that provide information on fundamental indexing.

• Global Guide to Strategic-Beta Exchange-Traded Products (Morningstar)

ETFs/ETPs

The benefits of ETFs, including lowering overall investment costs, diversification, improving accessibility of asset classes and global markets, liquidity, holdings transparency, and low investment minimums have led to their adoption and acceptance by an increasing number of investors.  Below are summaries, copies or links to research articles, white papers and data on the ETF industry.

• ETFGI Research Note: ETF/ETF Industry Forecast to Surpass Hedge Funds in 2Q (April 2015)

In just 25 years since there inception, global assets in ETFs/ETPs are expected to surpass those in hedge funds, according to ETFGI.  Global ETP assets were recently tallied at US$2.926 trillion as of the end of Q1, 2015 while hedge fund assets (as reported by Hedge Fund Research) totaled US$2.939 trillion.  In the first quarter of 2015, ETP inflows were US$96 billion, compared to just US$18.6 billion for hedge funds.  You download a copy of the report from the ETFGI website.

Core-Satellite

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Core/satellite investing is a method of portfolio construction designed to minimize costs, tax liability and volatility while providing an opportunity to outperform the broad capital market as a whole. The core of the portfolio consists of passive investments that track major market indexes, such as the Standard and Poor’s 500 Index (S&P 500) and/or the Barclays Capital Aggregate Bond Index. Additional positions, known as satellites, are added to the portfolio in the form of actively managed investments. The conventional view of the core-satellite methodology suggests it is prudent to use index funds for markets that are deemed efficient and to use active managers in areas considered to be inefficient, where the managers are presumed more likely to succeed.