It’s alpha our clients pay for…

by | Oct 21, 2019

“It amazes me how people are often more willing to act based on little or no data than to use data that is a challenge to assemble.”

– Robert Shiller

The debate surrounding active versus passive portfolio management has been with us a long time.  Get used to it. 

Just like an argument about which is the better NFL franchise, Vikings or Packers, the case for both are rational and passionately defended.  Which works better?  It depends on who and how many you ask.  It depends on the timeframe.  It depends on what is meant by “better”.  John Rekenthaler of Morningstar was recently quoted in a WSJ article saying, “Active will never die”.  He’s probably correct, but active will need a better environment in which to operate and not all active managers will survive.

It seems over the past few years active has been the victim of low volatility and very good index returns.  A white paper by RVK Investments studied excess returns of active large cap managers under different dispersion environments and concluded that high dispersion (volatility) and index return levels drive active management relative performance.  When an index shows strong returns, active management trails.  When dispersion of returns are low, active trails again.  Market cycles are persistent and deliver the beta both good and bad.  But beta is not what we’re looking for in active management.

We want alpha and it’s alpha our clients pay for. 

Where do we look to find the best active mangers?  What are some of the characteristics of superior managers?   Low fees, protecting the downside, and manager ownership of the fund is a good start, but these lack completeness.  Northill Capital in a 2016 paper that a focused management style was a key to delivering alpha.  A focused fund manager delivers value by adopting a business model that commits all of the management time and resources to a single investment process.  These managers target specialization in one asset class and are not distracted by bringing new products or strategies to the market.

Being a generalist is just another way to under perform. With the Salt Creek Investors platform our strategies and processes are aligned with several of the traits mentioned above with discipline and objectivity being the hallmark.  But just as important are our strategies which are unique and offer our clients a real opportunity to see value, even under an asset allocation structure.  As Howard Marks once commented, “active management strategies demand un-institutional behavior from institutions, creating a paradox that few can unravel.  By operating in the institutional mainstream of short-horizon, uncontroversial opportunities, committee members and staff ensure unspectacular results, while missing potentially longer-term contrarian plays.”

As you consider the information provided with the Salt Creek Investors Asset Allocation Platform (the “Program”), please review the following:

The information and descriptions provided about the Program are for educational and information purposes only and should not be used or construed as investment advice, an offer to sell, a solicitation of an offer to buy, a recommendation for any security, or suggest any course of action. LaSalle St. Investment Advisers (“LSIA”) does not guarantee that the information or descriptions supplied about the Program are complete or timely. LSIA makes no warranty with regard to any results obtained from the Program or its deployment. LSIA is not responsible for any direct or incidental loss incurred by relying on information provided about the Program. The allocations presented herein are illustrations and completely hypothetical. None reflect actual investments or investment results and do not reflect allocation of any individual portfolio. Asset allocation and its results vary over time. Other allocations or asset investment categories not offered in the Program may have characteristics similar or superior to those illustrated. Past performance of any model or allocation is no prediction of future results. Neither the Program nor any system/model can predict the future of any market or price movement in a market. Diversification and asset allocation do not guarantee against the risk of investment loss, including risk of loss of principal. Information provided regarding the Program is as of the date of publication and may change at any time without notice. Information has been included which was obtained from third parties and is believed to be reliable and complete. LSIA does not warrant the accuracy or completeness of such information. LSIA is a registered investment advisor and does not provide tax, accounting or legal advice ‒ the information and/or descriptions provided do not constitute such advice. More information regarding LSIA and its investment strategies can be found in the LSIA brochure, ADV Part II, which is available online or through LSIA. Asset allocation may not be suitable for all investors. Before deciding to invest, potential participants should consult with an investment adviser to determine an appropriate investment strategy and methodology which meets the investor’s specific financial needs, objectives, goals, time horizons and risk tolerance. The information and description provided herein has been made without consideration of any investor’s particular suitability for investing in the Program. Asset allocation also involves investment in various asset classes which are not insured by the government. Investing in fixed income and/or high yield securities involves additional concerns including interest rate risk, credit risk and reinvestment rate risk. Investing in securities outside the United States may entail greater risk than investing in domestic U. S. markets. These risks typically include political and economic uncertainty of foreign countries as well as currency exchange fluctuations, including foreign currency exchange rates, political risks, different methods of accounting, financial reporting and foreign taxes. The prospectus accompanying a security should carefully be reviewed before investing. The services described herein are available to persons residing in any state where they would otherwise be contrary to local law or regulation.


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