New forward-looking expected returns?

by | Aug 26, 2019

“Rebalancing is one of the thorniest questions in asset management.”

– William J. Bernstein

Rational Expectations, 2014

There are several objectives for any strategic asset allocation strategy.  Well known are the benefits and characteristics of this investment blueprint. Diversification, risk reduction, non-correlation of asset classes, and exposure to different risk factor premia, all working together to offer greater stability to a portfolio than would otherwise not be found in concentrated strategies. 

Another key but not widely known directive for a strategic plan, is small infrequent changes in the strategic allocation opposite large changes in valuation.  These changes to the strategic allocation should be performed only when large valuation changes, not price changes, have occurred to reflect new forward-looking expected returns for a particular asset class.  These changes to the strategic allocation do not occur often but when they do it is during periods of extreme market euphoria or negative sentiment. Infrequent changes to any strategic plan keep managers from becoming market timers, buying when valuations are high, and selling when valuations are low. It also requires the manager to avoid many common behavioral heuristics. The type of behaviors often seen in the investing public.

Asset allocation strategies, though simple in concept, require discipline in executing both strategically and tactically. Though less frequent than tactical changes, portfolio managers should be aware there are times when strategic changes are needed to reflect new market realities.

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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