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Adding Risk Parity To A Portfolio

We’re always trying to build a better mousetrap around here by adding non-correlated asset classes to our portfolio. While there is no “free lunch” in economics, true diversification is about as close as you’re ever going to get. And by “true diversification,” I mean adding assets to the portfolio that really do zig when the others zag. A portfolio of 100 stocks doesn’t offer much diversification benefit when the entire market rolls over. At any rate, Dr. Phillip Guerra and I have cooked up a suite of alternative portfolios based on the principles of risk parity. We’ve been running our Active Risk Parity Portfolio With 7% Annual Volatility Target live since September, and we’ve backtested it to 1996. The results aren’t too shabby, if I do say so myself. Average annual returns of 11.5% with a maximum drawdown of just 9.8% and a correlation to the stock market of just 0.24. Rather than target returns – which are impossible to know with any accuracy in advance – we target volatility. While volatility will also fluctuate over time, we find it to be more accurate to target, and also that it gives us a better handle on risk. The key to making money over time is first to avoid losing it. I don’t consider this a replacement for a traditional long stock portfolio. In fact, most of the money I manage is long-only and dividend-focused. But I certainly do consider this a nice addition to a traditional stock portfolio. With bonds not likely to offer much in the way of return anytime soon, you need viable alternatives for the “40” in the old 60/40 portfolio of stocks and bonds. A risk parity model can certainly fill that role. This article first appeared on Sizemore Insights as Adding Risk Parity to a Portfolio . Disclaimer: This article is for informational purposes only and should not be considered specific investment advice or as a solicitation to buy or sell any securities. Sizemore Capital personnel and clients will often have an interest in the securities mentioned. There is risk in any investment in traded securities, and all Sizemore Capital investment strategies have the possibility of loss. Past performance is no guarantee of future results. Original Post

Video: The World Is Going Passive. Is It A Mistake?

Man Group’s 2016 Unconventional Views video series is designed to present original thoughts and insights that challenge the consensus view. The videos feature leading executives from the firm’s four investment engines, Man AHL, Man GLG, Man FRM and Man Numeric, explaining their views on various investment themes. In recent years, there has been a seismic shift within the asset management industry from active to passive investing. In this video, Ben Funnell, Portfolio Manager at Man GLG, considers this shift and explains why he thinks the growing alpha opportunity in the market is tipping the balance back in favor of active management. He outlines several structural and cyclical reasons to support his argument that today’s investors should take a second look at active management: Fund alpha is more important later in a market cycle, and this alpha is vital for many institutional investors with real growth hurdles and obligations to distribute. The stock-picker’s opportunity set is increasing along with the percentage of stock-specific return, which may represent a structural change. Smart beta may not be so smart, especially since allocating away from active managers still requires active decision-making. Past performance is not indicative of future results. The value of an investment and any income derived from it can go down as well as up and investors may not get back their original amount invested. Opinions expressed are those of the author, may not be shared by all personnel of Man Group plc (‘Man’) and are subject to change without notice.

4 Balanced Mutual Funds To Buy For Steady Returns

Balanced funds provide investors with the convenience of buying into a single fund rather than holding both equity and bond funds. This category of funds also reduces a portfolio’s volatility while providing higher returns than pure fixed-income investments. Fund managers of such funds also enjoy the flexibility of varying the proportion of equity and fixed income investments in response to market conditions. An upswing may prompt them to hold a relatively higher share of equity in order to maximize gains, whereas a downturn sees them turning to fixed-income investments to stem losses. Below, we will share with you four top-rated balanced mutual funds . Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) as we expect the fund to outperform its peers in the future. RidgeWorth Moderate Allocation Strategy Fund A (MUTF: SVMAX ) seeks capital growth over the long run and current income. In order to achieve its objective, SVMAX invests 40-60% of its assets in underlying funds that predominantly invest in equity securities. It also invests 30-60% of its assets in funds investing in fixed-income securities. SVMAX invests the rest of its assets in cash and cash equivalents, which also include unaffiliated money market funds, the U.S. government affiliated securities and short-term paper. The RidgeWorth Moderate Allocation Strategy A fund has a three-year annualized return of 4.4%. SVMAX has an expense ratio of 0.67% as compared to the category average of 0.89%. T. Rowe Price Personal Strategy Balanced Fund No Load (MUTF: TRPBX ) invests approximately 60% of its assets in stocks and 40% of its assets in bonds. TRPBX also invests in money market securities. It seeks to achieve maximum total return through capital appreciation and income. The T. Rowe Price Personal Strategy Balanced fund has a three-year annualized return of 5.6%. Charles M. Shriver is the fund manager since 20 1 1. John Hancock Funds Lifestyle Aggressive Portfolio A (MUTF: JALAX ) invests most of its assets in underlying funds, which in turn focus on acquiring equity securities. JALAX’s assets also get invested in underlying funds that primarily invest in fixed-income securities. It invests in a wide range of underlying funds that allocate their assets in equity securities of companies of any size throughout the globe. The John Hancock Funds Lifestyle Aggressive A fund has a three-year annualized return of 5. 1%. JALAX has an expense ratio of 0.47% as compared to the category average of 0.8 1%. Fidelity Balanced Fund No Load (MUTF: FBALX ) seeks income and capital growth. FBALX invests around 60% of its assets in equity securities and the remainder in a balance of debt securities including bonds and lower-quality debt instruments. FBALX is expected to invest a minimum of one-fourth of its assets in fixed-income senior securities. It invests in securities throughout the globe. The Fidelity Balanced fund has a three-year annualized return of 7.7%. As of January 20 16, FBALX held 1, 186 issues with 2.45% of its assets invested in Fidelity Cent Invt Portfolios. Original post