As the industry continues to evolve at an ever-faster pace, spurred by technological innovation, the data revolution, and market structure developments, both traders and portfolio managers (PMs) are wearing increasingly more hats in their quest for success. Claudia Preece examines the current relationship between the two sides and the potential for converging roles in the future.
#trading#markets#buyside#assetmanagers#portfoliomanagers#traders#tradingtechnology#PMs
As the industry continues to evolve at an ever-faster pace, spurred by technological innovation, the data revolution, and market structure developments, both traders and portfolio managers (PMs) are wearing increasingly more hats in their quest for success. Claudia Preece examines the current relationship between the two sides and the potential for converging roles in the future.
#trading#markets#buyside#assetmanagers#portfoliomanagers#traders#tradingtechnology#PMs
Model portfolios should be great for advisors, except the portfolios are primarily just stock / bond allocations instead of building real diversification to achieve more durable returns across economic environments.
Last week Katie Greifeld highlighted the moves Goldman was making into the model portfolio business for advisors. But what stuck out to me was the product on offer. "GSAM provides off-the-shelf strategies — which could offer anything from a 90% allocation to equities and a 10% weighting to fixed income, and vice versa." Such models may give advisors operational leverage but from an asset management perspective these options sound like they are stuck in the past.
With these offerings Goldman has essentially created another version of Target Date Funds which we've highlighted in the past are basically all-in concentrated bets on equity risk. Even very simple shift in allocations to risk-balanced bonds, gold, diversified commodities, low-cost alpha could create a meaningful improvement in the expected return relative to risk, lessen drawdowns, and create more consistent returns without giving up much correlation to traditional 60/40 style portfolios as we describe in an old piece on the limitations on Target Date Funds below.
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After 5 years of hesitation, Goldmans goes all-in with Model Portfolio.
Interesting to note that it is 5 years since Goldman Sachs acquired S&P’s Model Portfolio Business, yet only now are we reading that they plan to become a top 5 player in this field.
So, what has changed during that time? As the saying goes, everything and nothing. If we go back to 2011 when Mark Andreessen wrote his article entitled "Software is eating the world", it's fair that viewpoint now feels like an understatement. To that we can add "ETFs are eating the Fund Management industry". Consequently, a Model Portfolio built using ETFs could very easily contain passive exposures, active strategies, risk-controlled funds, CTA like strategies along with Fixed Income ETFs that actually have a maturity date.
If one adds the ultimate 'bazooka' of Crypto ETFs, then conceptually a Model Portfolio of ETFs is quite possibly the most flexible investment wrapper ever to grace the halls of Wall Street! Great to see that Goldmans is finally catching up with Algo-Chain, wonder how they will do when they take our Model Portfolio quiz, which will be launched any day now. Watch this space.
Historically, markets have been up more than down, but that doesn't mean there aren't "scary" moments along the way. By way of example, this slide from J.P. Morgan Asset Management's "Guide to the Markets" displays the S&P 500's annual returns by year (in grey) as well as each year's intra-year decline (in red).
These data points make clear that the market has, historically, been "capable of recovering from intra-year drops and finishing the year in positive territory, which should encourage investors to stay the course when markets get choppy."
Disclosures:
Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management.
Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Past performance does not guarantee future results. Returns shown are calendar year returns from 1980 to 2023, over which time period the average annual return was 10.3%.
Data as of May 31, 2024.
Should US equity market concentration be a concern for portfolio diversification? And why is trend following a popular option as a ‘new diversifier’? Read our latest Multi-Asset Insights to find out more: https://grp.hsbc/6048j65tw#AssetManagement#UnitedStates#MultiAsset
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