Wed. Jan 19th, 2022

Financial advisors should adjust their investment vision by 2020, industry experts suggest.

Whether you are ready or not, we are already in the fourth part. What moves do you need to make to place your clients ’portfolios in the current uncertain landscape?

Orion Advisor Solutions Investment Director Rusty Vanneman recently presented during a S&P Dow Jones Indices webinar on the growing range of strategies that advisors need to consider when recalibrating client portfolios to take into account what has become a constantly volatile market.

Here is a summary of the webinar that breaks down where industry leaders think advisors should turn their focus to investments by 2020.

Buffer strategies

Rusty Vanneman, CLS Investments

Given the current volatile outlook, Vanneman outlined how advisors can use tactical buffer strategies to block potential gains for their clients while protecting themselves from the downside.

The reasons why investors want their advisors to use a tactical strategy with an emphasis on downside risk management are:

  • They do not have the stomach to tolerate losses.
  • They are concerned about the sequence of returns, especially if they are about to retire and cannot afford any loss of their portfolios, even for an intermediate period.
  • They understand that downside risk strategies seek to limit the impact of large stock market crashes and feel comfortable with a little extra risk when the market trend has been positive.

“When it comes to the yield sequence,” says Vanneman, “it’s very important for many investors to limit the loss of their portfolios.”

For example, it would take a little over four and a half years to recover from a 20% loss in your portfolio, assuming a 5% return.

To protect against these losses, CLS Investments uses a tactical strategy called a hedged equity strategy and we use our proprietary Shelter Fund, which focuses heavily on equity ETFs.

The following explains how the protected equity strategy works in different markets:

  • Flat or rising market: The protected equity strategy invests entirely in ETFs of diversified securities, which approximate the global volatility of the market.
  • Declining market: The hedged equity strategy will begin to move away from growth-seeking assets and begin to move to amortized capital ETFs or low-volatility ETFs, while the rest of the strategy will remain invested in diversified equity ETFs.
  • Market in severe decline: The diversified equity strategy will continue to be invested in amortized or low volatility equity ETFs and will also begin investing in cash in order to limit the downside risk of significant stock market declines.

Vanneman says CLS decided to use defined ETFs in the middle of its strategy to protect portfolios because they are basically a lower volatility ETF that emphasizes loss protection, can still participate in rising returns and complements and helps diversify the wallet.

For example, the S&P 500 Power Buffer ETF had a relative risk and half beta of the global market from August to September 2019, according to Morningstar data, while capturing a return of 2.5 (an increase of 0.538) in compared to the return of 4,645 from the market.

“We believe investors and tactical strategies expect loss prevention,” he says. “While the strategy is primarily based on trying to avoid serious losses, investors really want any kind of loss prevention.”

Thus, advisors can deliver a unique customer experience by 2020 through a tactical and flexible asset allocation strategy with buffer ETFs to help investors stay on track and achieve their ultimate goals.

Low volatility investment

Jason Sangekar, Magnus Financial Group

Sangekar talked about how advisors can defend themselves and how their company decided to rebalance and risk equity allocations in all model-based portfolios through low-volatility investments.

With growing concern that the ten-year upward cycle will end, with equity indices reaching all-time highs and the multiple valuation trend above historical averages, the Magnus Financial Group sought to move toward further diversification. and reduced correlations.

Like buffer strategies, low volatility investing is designed for greater protection against withdrawal. It uses a rules-based approach to target low-volatility factors, such as standard deviation, in order to reduce volatility, low beta, and lower capture. The only drawbacks are lower uptake, higher turnover and sector concentrations.

With this strategy in mind, Magnus decided to reduce the allocation to the national growth of large national capitalizations and international developed markets (especially in Europe) and instead chose to reassign it to:

  • Private real assets (non-correlative functions)
    • Institutional infrastructures, agriculture, forests
  • Short-term debt (US) of emerging markets
    • Short-term debt instruments of emerging and sovereign issuers in emerging markets
    • Ability to improve overall portfolio income in the current low interest rate environment
  • Large US mix low volatility
    • Extensive exposure to US equity markets
    • Tactically adjusted low volatility components

Sangekar says investors tend to want to jump continuously to find the best performing asset class each year, which can turn returns into a challenge. But a larger return is needed to recoup a capital loss, so it’s important to add a defensive stance to portfolios during volatile periods.

“Unforeseen events such as economic and geopolitical disruptions emphasize the importance of the time horizon,” Sangekar says. “The goal of our company is for our customers to be long-term investors and not day traders.”

And low volatility investing can provide much-needed stability and confidence.

ESG Investing

Matt Pierce, Wealth Consulting Group

Moving away from the issue of volatility, Pierce, of the Wealth Consulting Group, focused on how advisors can take advantage of changing consumer preferences to “do well” through ESG investment.

“Consumers care more than ever about what they put in both their body and their body, the environmental and social impact of their consumption habits and the supply chain of these products,” says Pierce. “It simply came to our notice then. Investing in ESG and changing consumer habits are two sides of the same coin ”.

Pierce explained that both the current dollar value of assets invested in ESG products and the expected amount of assets “are attractive and hold holders.”

Millennials and women lead the position and are looking for suitable advisors to help them do so. Ninety percent of millennials I want to allocate to responsible investments in the next five years and women are twice as likely consider sustainability along with return when investing.

But, according to InvestmentNews data i Financial Advisor Magazine, respectively, two out of three adult children and 70 per cent of widows dismiss advisers after inheriting mainly due to differences in investment objectives.

“If you’re not talking about ESG, your competition is,” Pierce says, “and it could probably be the reason investors select a different advisor.”

Investing in ESG demonstrates that a quantifiable asset is being made and does not mean sacrificing returns or increasing risk.

A meta-study of the University of Hamburg and Deutsche Asset Management of more than 2,000 academic ESG performance studies found that 88% of firms with sound sustainability practices demonstrate better operating performance and cash flows, 90% demonstrate that prudent sustainability practices have a positive influence on the return on investment and, in general, companies with high ESG ratings usually have a lower cost of capital.

Therefore, Pierce challenges: “If you’re not sacrificing performance, if the message resonates with a larger and growing segment of our customers and potential customers who are more aware than ever of their consumption and investment, what’s the downside? from the beginning to incorporate ESG into our practices and portfolios? “

How CLS can help in 2020

CLS Investments offers innovative investment solutions, market-leading expertise and first-rate portfolio management services to help advisors and investors achieve financial success.

Let us help you make 2020 your best year. Contact us today.


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