Staying out of trouble as a fiduciary

To avoid fiduciary breach claims due to costs, there are several things an investment committee can do to avoid being dragged into court by their participants. 1) Make certain your investment committee is proactive and members either have the expertise to perform or engage those that do. The reality is all fiduciaries have potential liability … Continue reading Staying out of trouble as a fiduciary

The Case for a 2 Asset Class Portfolio

Nobel winner, Harry Markowitz explicitly said in his paper, Portfolio Selection (attached), “It is necessary to avoid investing in securities with high covariances among themselves.” He also said to invest in an asset class one has to have “beliefs about the future performances of available securities.” Therefore the question becomes, how many asset classes are … Continue reading The Case for a 2 Asset Class Portfolio

Picking Active Managers II

In their paper, "Is Manager Selection Worth the Effort for Financial Advisors?," authors, John West, CFA, and Trevor Schuesler, CFA, conclude "manager selection fails to produce positive excess returns, on average" and "trend-chasing behavior leads to poor buy and sell decisions." They find "many advisors put their clients on the "hamster wheel" of manager selection, … Continue reading Picking Active Managers II

Picking Active Managers

To justify hiring active managers, the investor must believe 1. Some portfolio managers have the skill to deliver superior performance. 2. The investor has the talent to identify superior managers. In his paper, "Manager Selection," Scott D. Stewart from the CFA Institute found the with respect to evidence that managers can outperform their benchmarks: "evidence … Continue reading Picking Active Managers

Big Three Index Providers – Evaluation xlxs

This index fund overview and worksheet link will guide you for your 401k. Index funds are managed through 'full replication' and/or a 'sampling' strategy. Sampling is used with a large index such as the Barclays Aggregate bond index. Sampling may result in tracking error, the variance in return from the index. For replication, tracking error … Continue reading Big Three Index Providers – Evaluation xlxs

When Diversification Fails

If you believe in asset allocation, then this paper (attached) is for you. In their paper "When Diversification Fails," T Rowe portfolio managers, Sébastien Page, CFA, and Robert A. Panariello, CFA, conclude that "One of the most vexing problems in investment management is that diversification seems to disappear when investors need it the most." Their … Continue reading When Diversification Fails