It has been widely accepted that asset allocation has the single largest impact on client portfolio returns – yet interestingly is a area where policy is set based on ‘what others are doing’ or some static ratio (e.g. 60/40 equities versus bonds) and is rarely influenced by current market conditions. At Atlas Capital Management, asset allocation gets the attention it deserves. Our asset allocation approach is informed by decades of experience managing institutional portfolios. We move client assets toward the markets with the highest expected return for the risk taken, while reducing or avoiding investments with poor prospects. This leads to higher returns at lower risk for clients.
Most investment strategies employed by individuals, wealth advisors, family offices, and endowments share the following characteristics:
- risk postures and exposure to economic growth are fairly similar
- asset allocation targets change modestly from year to year
- when large changes to target allocations do occur, they tend to be byproducts of external forces (market volatility, capital calls and distributions) rather than the deliberate choice of the investor or advisor
- an almost exclusive dependence on equity-like investments for return
- limitations to understanding what is actually owned
- efforts are spent on manager selection rather than asset allocation.
At Atlas, we feel a better approach is to:
- Prioritize asset allocation over manager selection
- Reduce dependence on equity risk with more emphasis on real diversification
- Be more liquid, flexible and opportunistic