Over time it’s been our experience that many advisors don’t have the depth of professional resources required to successfully manage asset allocations in a dynamic fashion. Consequently, their investment programs tend to set the asset allocation once, based on historic norms or some benchmark, and then keep it static.
Without active management of asset allocations, most of the value of these static programs comes from the bottom up, through individual security selection often done by outside managers. However, studies have shown that less than 10% of long-term portfolio returns are attributable to these bottom-up selections. In our view, these programs have less potential to add value.
In contrast, actively managed investment programs, like ours, with the benefit of a fully functioning Chief Investment Officer, offer an entirely different and additional level of value from the top down. Dynamically adjusting asset allocations as opportunities and risks emerge can add significant value. In fact, numerous studies have shown that greater than 90% of long-term portfolio returns are attributable to asset allocation decisions.
Thus, we believe that programs with a fully functioning Chief Investment Officer create a complete and structurally advantaged investment solution when compared to the one-dimensional static asset allocation programs that other advisors embrace.