• March 21, 2017
    Diversification, Volatility

    Yesterday, the S&P 500 suffered its first decline in excess of 1% since October 11th. Volatility has essentially been non-existent since the election, with the VIX hovering around 12, well below its long term average of approximately 20. Investor complacency has been building, evinced in part by the record level of flows to ETFs in January and February, as those late to the party increasingly have been throwing money at the market so as not to be left further behind.

    So is recent performance indicating a crack in the market’s armor?

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  • March 15, 2017
    capacity, Investment Planning

    Many investors have rules regarding the maximum weighting that their capital can comprise of a fund’s total assets. For example, if an investor wants to be no more than 50% of a fund’s assets (not including the investment to be made) then the most that investor could invest in a $100 million fund would be $50 million. One common explanation for such limitations is concerns about liquidity. If an investor is $50 million of $100 million fund and liquidates, the sale of $50 million dollars could have a negative impact. However, the same is true for a $50 million liquidation in a $1 billion fund, as a $50 million trade will have the same market impact irrespective of fund size.

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  • March 09, 2017
    Alternative Assets, Investment Planning

    With March Madness starting next week, it reminds us how coaches take a closer look at their playbooks this time of year in hopes of making it to the Big Dance. Offenses are shuffled, defenses are bolstered, and if the coach makes the right moves, the team walks away a winner.

    Investors are at a similar crossroads these days. The eight-year bull market that started in 2009 has helped investor portfolios post remarkable growth—but it won’t last forever. Streaks are made to be broken and the NCAA tournament thrives on them. Almost every year a 12 seed upsets a 5 seed and there would be no March drama without upsets and a “Cinderella Story”.

    It’s important then, for investors to re-examine their investment lineup and start preparing now for what will likely be a tougher game in the near future. For many, that means adopting a diversification strategy that goes beyond the standard 60/40 portfolio.

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  • March 01, 2017
    capacity, managed futures, trend-following

    A few months ago we wrote about strategy capacity, specifically, regarding the trend-following managed futures universe. In discussing the issue, we outlined that one of the most important exercises we go through when developing a strategy is to understand the markets we will be trading, the sources and nature of liquidity, and the potential for impacting prices when we trade if we raise significant assets within the strategy. While we were speaking in terms of trend-following strategies, the same lessons can be applied across the entire investment strategy spectrum.

    Our process for establishing and updating capacity for any given strategy is the following…

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  • According to a recent survey conducted by Eaton Vance, and as reported by Financial Advisor IQ, advisors and clients have disparate views on volatility, specifically, why it matters.

    “The survey also found a gap between how advisors and clients approach volatility. Among advisors, 54% say they manage and harness it, 17% want to use volatility to their advantage, and 18% just want to manage it enough to avoid losses. By contrast, 48% of clients just want to avoid losses, while only 32% want to manage volatility as well as harness it and 14% see it as an opportunity.”

    While we’re not exactly certain what is meant by “harnessing” volatility, as that sounds an awful lot like one of the other potential responses – using volatility to one’s advantage – it’s clear that preventing losses is the reason that clients care about volatility, while advisors judge that to be of lesser concern.

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