Strategic Asset Allocation is an approach that aims to combine equities (stocks), fixed income (bonds) and cash in an efficient manner in order to capture broad market returns while balancing risk and volatility. The goal of a strategic asset allocation approach is to put the positive winds of a sailing market to work in your portfolio. A strategic portfolio is generally a passive strategy that re-balances to the target allocation when the target allocation deviates beyond an established acceptable range.
Tactical Constrainedsm Asset Allocation is an approach that attempts to capture broad market returns while also seeking to take advantage of shorter term opportunities or mitigate risks through moderate allocation shifts. Tactical Constrainedsm approaches may also put the positive winds of "sailing” markets to work in your portfolio, but they also create the potential for the portfolio strategist to add additional value through active, near term allocation decisions.
Both Strategic and Tactical Constrainedsm approaches are "Sailing" strategies.
Tactical Unconstrainedsm approach removes the limits on the extent and frequency of allocation shifts, allowing the portfolio strategist to move more aggressively in response to changes in their outlook or the markets. Tactical Unconstrainedsm asset allocation approaches can provide flexibility for rowing markets when economic headwinds place a premium on active asset class management.
Absolute return strategies are for risk-adverse investors comfortable with modest returns in exchange for highly active risk management that may include frequent allocation shifts, non-traditional asset classes and/or alternative strategies. Absolute return strategies may be used for attempting to row toward your goals regardless of the stock market's direction.
Tactical Unconstrainedsm and Absolute Return are rowing strategies designed to help you continue towards your goals even when economic waters are choppy and the economic winds are scarce.Sometimes the best strategy is a combination of approaches. Combining multiple asset allocation approaches adds an additional layer of diversification
across management style and can often further reduce volatility which is the main purpose of diversification.
Most Investment Advisors provide one single asset allocation approach which is typically strategic asset allocation. Strategic Asset Allocation works well in "Sailing” markets such as the great bull market from 1982-2000. However the problem is that we have clearly seen extended market environments when "sailing” strategies do not work very well such as 1966-1982, 1929-1942, and as we have seen since 2000. This is like attempting to fight a war using strategies that worked from the previous war which usually don't work very well. To fight the current war we need to deploy strategies that will work in the current environment.
This is where Portnoff Financial LLC is different from most Investment Advisors in developing the capability to deploy more than one investment strategy. In determining the market outlook, I utilize the data I have available to better understand the current economic and market environment as well as the general outlook and macro-economic trends. Once the outlook is determined, the next step is to decide on the overall strategy and which asset allocation approaches to incorporate to build the portfolio. Sometimes it is clear which approach is best and sometimes it is not so clear. This is why a combined approach works well to mitigate risk and reduce valatility.
Once the Asset Allocation approach is determined, the next step is to pick one or more Portfolio Strategists to implement each asset allocation approach.
