Types of strategies used to manage your client funds?

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ilikecoffee's picture
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Joined: 2010-06-22

I thought it would be interesting to get a cross section of how you guys are managing your clients money whether it's trading or asset allocation. And if trading or asset allocation, what are the specifics, like which type of stocks, mutual funds or etfs, etc?

loneMADman's picture
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Joined: 2010-05-10

Coffee, here is how I would describe my strategy.  It would be nice if you shared yours!  I'd also be interested in hearing what tools are used by those of you doing independent research.  I use Morningstar a lot and fund prospectuses.  Lastly, your clientele is an important consideration too.  Mine is not really HNW, but mass affluent and accumulators; partly that's geography, partly that's being new to the business.Asset allocation forms the basis of my strategy for all clients.  For those looking to allocate a portion towards more aggressive growth I employ a value-based, contrarian strategy, that I have described elsewhere.  I don't do "trading" per se, however, I am always looking at valuation and I will weight certain sectors on that basis.  Currently, I am overweighted technology and materials.I prefer ETF's to individual stocks and mutual funds.  I will often recommend mutual funds for small cap and international exposure, especially in emerging markets, where I think stock picking can be important.  Generally, I find low cost alternatives with decent track records and the right correlation (basically making sure I am getting the asset allocation I want).  I am also a big fan of yield these days, for obvious reasons.With respect to individual stocks, I don't generally promote those, but I will offer clients my assessment of any "ideas" they have.  I will also research stocks in particular sectors if they want aggressive exposure to something but don't know exactly what they want.  Some stocks I have given recent blessing (last 12 months) include Google, Corning, Target, Best Buy, P&G.  Not all of those would necessarily be buys given current pricing.  For example, I would consider Google a hold after its recent run.I employ pretty much the same strategy with fixed income, preferring ETF's in general, mutual funds in spots, and specific issues in rare occasions for HNW.  I am very negative on long-term (> 2 years) fixed income of any kind, but will obviously employ longer-term positions as part of an asset allocation strategy, with care.

squash2's picture
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Joined: 2010-03-09

THe idea of sharing investment ideas is retarded.. unless you do something that no one knows what you are talking about (i.e. Gaddock)..Follow your firms guidlines until you build a big enough book where you can learn how to do it yourself...

N.D.'s picture
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Joined: 2009-07-14

loneMADman wrote:For example, I would consider Google a hold after its recent run. I don't blame you especially since Cramer said it will continue running up around 550.00!! It must be overbought already! loneMADman wrote:I employ pretty much the same strategy with fixed income, preferring ETF's in general, mutual funds in spots, and specific issues in rare occasions for HNW.  I am very negative on long-term (> 2 years) fixed income of any kind, but will obviously employ longer-term positions as part of an asset allocation strategy, with care.If ETFs track indexes and the TLT tracks 20+ Treasuries, what will the TLT do if rates go up? Will the ETF be forced to track the rise in coupons? The way I understand the index is that the index drops <20 year treasuries and picks up newly issued ones. So the TLT will have to do the same. What are your thoughts?

loneMADman's picture
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Joined: 2010-05-10

squash2 wrote:THe idea of sharing investment ideas is retarded.. unless you do something that no one knows what you are talking about (i.e. Gaddock)..Follow your firms guidlines until you build a big enough book where you can learn how to do it yourself...Squash, this is the RIA board.  I am my firm.  Personally, I think working for someone else in this business is retarded, but it's a thought I mostly try to keep to myself.  Another thing that's retarded to me and other RIA's is the idea of building a book before you learn how to invest.  Do your clients know you're an empty suit?Lastly, exactly how do you share an idea "that non one knows what you are talking about"?  And if you could, what would be the point?Thanks for the laughs, though.

loneMADman's picture
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Joined: 2010-05-10

N.D. wrote:loneMADman wrote:For example, I would consider Google a hold after its recent run. I don't blame you especially since Cramer said it will continue running up around 550.00!! It must be overbought already! loneMADman wrote:I employ pretty much the same strategy with fixed income, preferring ETF's in general, mutual funds in spots, and specific issues in rare occasions for HNW.  I am very negative on long-term (> 2 years) fixed income of any kind, but will obviously employ longer-term positions as part of an asset allocation strategy, with care.If ETFs track indexes and the TLT tracks 20+ Treasuries, what will the TLT do if rates go up? Will the ETF be forced to track the rise in coupons? The way I understand the index is that the index drops <20 year treasuries and picks up newly issued ones. So the TLT will have to do the same. What are your thoughts?Cramer is a fraud and a moron.  The first couple of times I watched him I was fascinated.  He comes off as knowing everything about everything.  When I actually started listening to what he was saying, I was appalled.  If you haven't seen it, you should try to find the post-crash interview he did with Jon Stewart.  That was a masterpiece of journalism.  Stewart totally deconstructed the guy to the point where you (almost) felt sorry for him.I think you understand the TLT correctly.  When interests rates rise the long-term bonds in the TLT portfolio will fall and yes the TLT will need to sell some of them (the duration on the portfolio is 16 years so it's not 1-to-1 new issue-to-sale). So just like the outstanding 20 year bonds themselves, the price of the index will fall.  That's what it's designed to do. These funds are not for someone who would otherwise buy and hold to maturity.  They are for those with a high tolerance for interest rate risk (not me).  That's why I said I go long with great care.  For someone who needs to be long in treasuries, I would go TIPS.  Not a perfect solution, but better, in my opinion.

BigFirepower's picture
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Joined: 2010-07-09

I work with hnw retirees. We use tactical asset allocation, generate tax efficient income to our customers, while providing very personal customer service. The tactical element, we find 2-3 sectors/areas that are unusually cheap, and overweight. We also seek out areas we think are bubbles/overvalued, and reduce/eliminate exposure to those areas. We blend stocks, funds, etfs, uit, and various fixed income together for an entire portfolio. I love being a portfolio manager, my favorite part of this career since day one.  

loneMADman's picture
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Joined: 2010-05-10

Sounds good to me BFP.  I'm not doing much different, other than the lack of many HNWs.  You just can't be as tactical with assets people need to eat someday.

BigFirepower's picture
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Joined: 2010-07-09

When I say tactical, I mean the overweight/underweight element, as compared to trading/aggressive. We really put a bent on reducing risk, compared to pimping out returns. We're big on cash flow, biggest paycheck the client has. Meanwhile, we do a fair amount of common sense estate planning stuff with folks.

ilikecoffee's picture
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Joined: 2010-06-22

I guess my stuff is slightly different from what many RIA's are doing in that I have a number of systematic (rule based) programs that can be considered short term to medium term market timing. When I approach a client I show them the audited track records of the programs. I use audited model accounts because it's too much of a pain/expense to do client composites, GIPS, etc. Embedded in my programs are forecasting models based on fundamentals plus technicals. I currently trade dollar, t-bond, HY, commodity at the frequent trading mutual fund custodians. Also, I'm about to go live with a longer term long-only model over at Fidelity.

Sportsfreakbob's picture
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Joined: 2008-08-24

Not an RIA but all my biz is fee based discretionary, and using the block trading system.5 portfolios. Each portfolio has a Core Equity and Core Fixed Income piece which together total 65% of the portfolio. The % core equity vs % core fixed changes with each model, but within each model the % of each doesn;t change. I use MF's and review the funds quarterly. Also will make a change here and there, i.e. at some point will sell long maturity FI funds and replace them with Short Maturity FI funds. But basically this 65% is the core and doesn't change much. The other 35% is tactical and is the same for all models. I use Dorsey Wright to make tactical decisions. The tactical piece can be anything from cash, to FI to Inverse funds to gold/silver to country funds. The result of this approach is that each model has bands, ie minimum and maximum equity exposure, with the equity exposure being the sum of the Core equity piece (different for each model) and the equity held in the tactical piece at any point in time.Squash - to say that sharing investment ideas is retarded, on a forum for Financial Advisors, is retarded.

loneMADman's picture
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Joined: 2010-05-10

OK, perhaps we can all, except perhaps Squash, agree that this is better than chatting about cold calling.Neat stuff SFB, even if you are a Jets fan (I'm a Dolphins fan and I don't pass along that compliment easily).  I never heard of Dorsey Wright so I went to their web site.  A bit too technical analysis for my taste.  It's not that I don't believe in technical analysis; it's just that the stuff that might work is bound to be so complex that I am unlikely to have the time ability to understand it.  And I don't like recommending stuff to clients that neither of us fully understand.Coffee, what types of investors are responsive to the strategies you outlined?  Is it mostly young accumulators or do you have many retirees or near retirees working with you on this?

Sportsfreakbob's picture
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Joined: 2008-08-24

I've been studying the Dorsey Wright methodology for 4 years, on and off, and still consider myself a novice. it is indeed complicated.

ilikecoffee's picture
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Joined: 2010-06-22

loneMADman wrote:Coffee, what types of investors are responsive to the strategies you outlined?  Is it mostly young accumulators or do you have many retirees or near retirees working with you on this?My clients thus far have been affluent to HNW older clients (55+) who are understand absolute return long/short strategies and risk adjusted returns. My programs aren't correlated to any benchmark (stock or bond) and cannot be compared to those benchmarks (or any benchmark for that matter). For example this year my t-bond program is flat on the year when t-bonds buy and hold is up about 20% ytd. This is my most underperforming year yet, but in 2008 my t-bond program was up more than 60% when t-bond buy and hold produced +32%, and in 2009 my program was up around 14% when t-bond buy and hold was down 18%. So, because of the volatility involved, clients and prospects need to be educated on this type of program that they need to 'buy and hold' the strategy. But in the end for most investors (including institutional investors) returns trump everything else. If they're in a peak to valley drawdown of more than 10 to 15% they'll bail no matter what you say about absolute return, sharpe ratio, sterling ratio, etc.

BigFirepower's picture
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Joined: 2010-07-09

I've been doing this pretty old fashioned. My style mentioned above, I'm happy with, has worked well for clients. Problem is, I have not converted to fee based, and do NOT have discretion. This last 6-8 months I feel like I've lost opportunity by not having discretion, and sometimes hard to get the attention of my clients in time for time sensitive trades. So they lost oppty, and I've lost revenue. I'm a bit concerned that going to fee based, becomes administrative issue, lots of paperwork, arguing about what to charge, fees. I'd be happy to get some input from folks that have crossed this bridge already!

David, RR editor's picture
Joined: 2010-01-17

Is gold going to top out any time soon? Is this the sign of a market top? We just ran a story advocating GLD for gold exposure (over mining stocks, for example, or mining ETFs). And today I got this from SSgA.. I am looking for feedback . . . what do you make of this boast? What is the argument for a continued run in gold? Inflation is nowhere in sight, but, i suppose, soverign debt could tank and there might be a devaluation of currency war. Anyway, here is the email from a PR person at SSgA that I received this a.m. Hi David, Tuesday morning, gold closed above $1,300 per tonne for the first time. As gold continues to reach new record highs and solidify its status as a strategic asset, investors are flocking to gold ETFs, with demand increasing by 414% in Q2 2010 compared with 2009 levels. I thought you might be interested in speaking to [name redacted], Senior Managing Director of State Street Global Advisors, about the SPDR® Gold Shares (GLD), the second largest ETF in the world, with over $52 billion in assets and 15 times the assets of the second largest gold ETF.   Some of the key themes Jim can address include: ·         The traditional challenges to investing in gold and how gold ETFs simplify access to the gold market·         Why fears of a “gold bubble” should not concern investors considering gold ETFs·         Cost efficiency - Why purchasing GLD will generally cost less than it would to buy, store and insure physical gold·         GLD as a leader in liquidity - GLD is the most liquid gold ETF in terms of trading volume, trading $1.9 billion in average daily dollar volume.·         GLD performance and strategy 

N.D.'s picture
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Joined: 2009-07-14

Either SSgA is spamming you or RR is spamming themselves now?

iliketennis's picture
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Joined: 2010-08-30

N.D. wrote:Either SSgA is spamming you or RR is spamming themselves now?Newest thing. Metaspam(tm)

tenthtee's picture
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Joined: 2006-11-16

I heard the GLD pitch on Fox this morning. Don't waste your time and energy on pure speculation - as an investor or as an editor. We all know the reasons. Five and ten years from now, advisors will be sitting down with their clients and looking at total return net of expenses, and comparing these against stock and bond indexes. ( Wonder what will happen to the price of GLD right after the election, when everyone who gets "in" is sitting down staring each other is the eyes and going, damn, now the work begins? No more hype and speculation, only hard work and austerity.)It's okay to have a little fun, would you seriously take a signficant position in GLD right now to help meet your short or long term goals?The equity you should be building  is in the Registered Representative "brand" itself. Half the RRs out here right now are ashamed of being registered representatives - what's up with that?If you want to differentiate your brand, consider writing a really good article on why the public should consider doing business with RRs vs. RIAs, and try to get it picked up by the online news services. There are plenty of good reasons why this is an important story right now, I don't see why you have to limit your audience to RRs or RIAs who inappropriately feel superior to RRs, or at least are telling stories to the misinformed general public. If I was the editor of RR, I'd go for it. Gone are the days of RRs pitching GLD. RRs are real financial planners, who help people diversify against time and taxes and protect the downside and help find steady growth against inflation. Put yourmoney there $$.

loneMADman's picture
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Joined: 2010-05-10

The most obvious sign that gold is in a speculative bubble is that everyone is talking about it and Fox News idiots are being paid to pitch it.  Like all bubbles, this one has, and could continue to, run a lot longer than reasonable people ever thought possible.  But it will burst spectacularly and ETFs, miners, coins, you name it will all be devastated in a similar manner.

David, RR editor's picture
Joined: 2010-01-17

tenthtee wrote: If you want to differentiate your brand, consider writing a really good article on why the public should consider doing business with RRs vs. RIAs, and try to get it picked up by the online news services. There are plenty of good reasons why this is an important story right now, I don't see why you have to limit your audience to RRs or RIAs who inappropriately feel superior to RRs, or at least are telling stories to the misinformed general public. If I was the editor of RR, I'd go for it. Gone are the days of RRs pitching GLD. RRs are real financial planners, who help people diversify against time and taxes and protect the downside and help find steady growth against inflation. Put yourmoney there $$. Interestingly, at the wirehouses, for example, most registered reps are dually licensed (can act as the IAR of the corporate RIA, i.e. by taking the Series 65). And Schwab and Fidelity have built nice businesses around independent FAs who are hybrid (dually registered). Isn't that the trend? And you say that RRs offer financial planning services. Is that legal? My understanding was that registered reps could only offer financial advice if that advice were incidental to the trade they were making for the client --- unless, of course, that FA was a CFP (an accreditation the SEC respects), or, again, held a 65. RR's cannot offer comprehensive financial advice --- that's what the law says, no? And do you think that the SEC will force all retail financial advisors to act in a fiduciary capacity anyway when it finally rules on the subject (it is still studying the issue)? Why would it be better to do business with RRs over RIAs? I'd be interested to hear your thoughts, because, while RRs are more professional than at anytime in the past, the fiduciary standard is a higher standard of conduct. What am I not seeing?

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