|
No Longer A Pipe Dream, Unified Managed Accounts Deliver Sought After Efficiency
January 25, 2010
Unified Managed Accounts
(UMAs) in recent years have gained traction among
the Registered Investment Advisor community. This
popularity is seemingly due in large part to the
active tax management, or the “tax alpha” that the
investor can experience in a UMA. Although the
investor’s after tax results are a desired real
benefit, it could be argued that it’s the Advisor’s
increased operational efficiency which is the
greater value of the UMA structure to the RIA
industry. That increased efficiency allows Advisors
to dedicate more time to value driven activities and
managing client relationships.
This white
paper provides detailed information to an Advisor
considering UMAs as a solution to back office
operational headaches. The paper outlines an
Advisor’s typical operational experience, comparing
and contrasting differing ways Advisors, as business
professionals, can choose to run their practice. As
UMAs are a choice an Advisor does make, it will be
shown that UMAs may be a superior investment
delivery vehicle to effectively manage accounts.
When Bad Things Happen to Good Portfolios:
Rethinking Risk & Diversification
November 03, 2009
“First, we make a guess.
Then we compute the consequences of the guess. Then
we compare the consequences to experiment. If it
disagrees with [the] experiment, it’s wrong.
In that simple statement is the key to science.
It doesn’t make any difference how beautiful your
guess is. It doesn’t make a difference how smart you
are, who made the guess, or what his name is. If
[the guess] disagrees with experiment, it’s wrong.”
When physicist Richard Feynman offered this
observation on theory versus empirical reality, it
is unlikely he was thinking about Modern Portfolio
Theory. The market events of 2008 and early 2009,
however, certainly raised questions of whether or
not Modern Portfolio Theory (MPT) actually holds up
in practice.
This article examines some of
the underlying tenets of MPT that do not hold up
well in reality – where experiment clearly disagrees
with guess – and summarizes several of the new ways
investors and advisors are thinking about risk,
diversification, and intelligent portfolio
construction. In many ways, it is a “back to the
future” storyline, as wealth managers realize the
danger of blind faith in the “science” of investing
and rediscover the importance of common sense.
When Wealth Management Met 2008: Now What?
October 22, 2009
The impact of the
financial collapse of 2008 and early 2009 continues
to reverberate through the wealth management
industry. Hundreds of thousands of jobs were lost,
many of them permanently, and the professionals that
remain seem to spend as much time defending their
firms or their industry as they do actually managing
client wealth.
This article discusses
appropriate “best practices” for wealth management
firms, post-2008. It segments the discussion by
addressing three specific questions: What has not
changed, what has changed, and what has really
changed. Advisors who successfully deliver
differentiated and tax-effective investment
portfolios, move beyond sharing data and information
and, instead, provide their clients with wisdom and
knowledge, and who can rebuild client trust in a
post-Madoff world will be the ones best situated to
capture the massive client and asset migration
expected to take place over the next several years.
Advantages of Investing in Global Equity Managers
September 23, 2009
As progressive investors
gravitate away from style-box investing and embrace
both unconstrained managers and core- satellite
portfolios, the employment of global equity is a
natural evolution. Just like all-cap managers run
portfolios unconstrained by market capitalization,
global managers run portfolios unconstrained by
country,
seeking opportunities across the globe.
They are free from the constraints of either
investing only – or only not in – the US.
This paper explores the potential advantages and
challenges of using global equity managers, as well
as how best to implement these strategies within a
well-diversified investment portfolio.
A
Modest Proposal for Wealth Managers: First Do No
Harm
April 08, 2009
In A Modest Proposal,
written in 1729, the noted Anglo-Irish satirist
Jonathan Swift suggested that the impoverished Irish
could ease their economic troubles by selling their
children as food. He went so far as to suggest that,
“A young healthy child well nursed is, at a year
old, a most delicious nourishing and wholesome food,
whether stewed, roasted, baked, or boiled; and I
make no doubt that it will equally serve in a
fricassee, or a ragout.” (source: Wikipedia)
In today’s chaotic market environment, many
wealth advisors find themselves impoverished as well
– impoverished with respect to their clients’ trust.
This proposal calls for wealth advisors to
go on a "trust offensive" and adopt as a standard
part of their practices a wealth management version
of the medical profession's Hippocratic Oath.
Currency Risk in International Investing
March 20, 2009
In February 2008, we wrote in
the Fortigent Research Report about the increased
risk of declining currencies to US investors in
international equities. At the time, investors
wanted higher international allocations to benefit
more from global growth and/or because of the fear
of a dollar crash (due to spiraling twin deficits in
the US). Rising currencies against the US dollar had
already generated a six year, 6.7% annual tailwind
for the MSCI EAFE Index (2002-2007), resulting in
14.8% dollar based returns. Currency movements are
extremely difficult to predict, as they are caused
by many factors - GDP growth, central bank policies
on interest rates and reserves, inflation
expectations, market liquidity and sentiment. As the
global financial crisis progressed in 2008, the
dollar (and the yen to a lesser extent) became a
“safe haven” reserve currency, despite even
worsening US deficits.
This article is the
second in a series of papers discussing the impact
of volatile currency movements on realized
investment return.
The Hitchhiker's
Guide to Core/Satellite Investing
July 31, 2008
This article will present the arguments for a
core/satellite investment approach in a practical,
non-technical manner -- the way it might be
explained to a potential investor or new client.
While the use of some terminology is somewhat
unavoidable, the intent here is to distill -- that
is, hitchhike on--the quantitative and academic work
that has been done on this subject and present it in
an intuitive and easy-to-understand way.
The
focus will be on (1) why it makes sense to include a
healthy allocation to passive and/or tax-enhanced
index strategies, (ii) why a diversified portfolio
should include alternative investments, and (iii)
how to build an intelligent core/satellite
portfolio.
Unified Managed
Accounts: The Next Step in the Evolution of High Net
Worth Portfolio Management
June 30, 2008
The Unified Managed Account (UMA) is quickly
becoming the new preferred framework for managing
assets for high net worth individuals, yet the
concept remains a mystery to many investors and
advisors alike. This article will explore the many
nuances of UMAs and discuss the advantages and
disadvantages of this evolving investment vehicle.
Differentiating International
Managers - Beta Drivers of Investment Strategies
(Part I of 2)
March 20, 2008
On the surface,
manager categorizations may seem neat and tidy,
especially for US equity managers with style boxes
ranging from large value to small growth. While
these categorizations are a useful starting point to
categorize and compare managers, it is important to
look beyond the style box conventions that are so
commonly used, especially when analyzing
international equity managers.
In this
two-part series (part two will be coming soon), we
explore a range of alpha and beta drivers that are
critical for selecting and benchmarking
international equity managers. This information is
an important component for implementing portfolio
decisions.
Incorporating
Alternative Investments Into High Net Worth
Portfolios
February 26, 2008
Alternative
investments play an increasingly important role
within high net worth portfolios, but many advisors
still struggle with incorporating them appropriately
within a broader asset allocation context.
The purpose of this article is to support the
argument that alternative investments belong in high
net worth portfolios, analyze what the appropriate
allocation is for them, and summarize some of the
challenges associated with actually implementing
more alternatives within portfolios of different
sizes.
Investing in International Managers: Opportunities and Challenges
September 11, 2007
As economic
globalization continues, investors are increasing
their exposure to developed international and
emerging markets managers. The traditional means for
high net worth investors to access these asset
classes is the Separately Managed Account (SMA). But
virtually all SMAs available to high net worth
investors invest only in the American Depository
Receipts (ADRs) of non-US companies, which
eliminates a significant percentage of the potential
investments.
This Inflection Point compares
investing internationally via ADR-only SMAs to
investing via unrestricted mutual funds and/or
limited partnerships (LPs), and concludes that
investors should consider employing the latter,
because of the wider opportunity set available to
skilled managers.
Coming to Portfolios Near You: Investment Ideas You Should Be Paying More Attention To
July
10, 2007
High net worth clients expect
good investment performance. But many economists
anticipate lower realized returns in the coming
years, and clients and advisors alike are asking for
new ideas.
This issue of Inflection Point
surveys several of the more interesting investment
ideas currently working their way into portfolios.
Some of them remain largely academic or
institutional. All of them, however, are trying to
capture that elusive prey – alpha – and we believe
they will all be in wide-spread use in high net
worth portfolios within three to five years.
Advisors, and investors, should be paying close
attention.
|
