The Road Less Traveled
Compass doesn’t spend a lot of time looking over our shoulders at our competitors, but we’ve definitely noticed that we’re doing a few things differently. When you’re on the road-less-traveled, you can’t help wondering why it’s such a lonely one. Perhaps it’s because others model their methods around the answer to the question, “What sells?”, while we're more interested in the answer to the question, “What works?”.
In·no·va·tion (i-nə-´vā-shən) n.: 1. something new or different introduced.
2. the act of innovating; introduction of new things or methods.
Yes, Virginia, There Is a Santa Claus
Many investment advisors put skilled active management in the same category as Big Foot. We’re not one of them. We’ve been successfully using our Manager Selection Process to identify skilled active managers for almost 20 years. Yes these are rare creatures, but they are out there and they are worth finding. For more information on our views on active investment management, you can check out our research paper, Passive Investing.
The Usual Suspects
Have you played the Manager Search game lately? This game happens when it occurs to you that your portfolio might need a new large cap equity manager. You pick up the phone and call your consultant who offers to do a “search” for one. Then you start thinking, “How many of these same searches does this guy do every month? Shouldn’t he already know who the best managers are?”
The obvious answer is, “Yes.” At Compass we don’t wait for clients to request a “search.” We’re constantly scouring the investment landscape for new managers, comparing them to the ones in our stable. If a better manager turns up, we bring them to our clients. Read more about our Manager Selection Services.
All Substance &
No Style
Is that equity manager’s style growth or value? A fair question to ask, especially as it relates to diversifying equity risk in your portfolio, but the answer isn’t as simple or precise as some would lead you to believe. In fact, you may be doing the manager a favor by lowering the bar at the expense of your portfolio. Our research paper, Re-Evaluating the Equity Style Paradigm, explains why, when it comes to benchmarking equity managers, Compass eschews style-based indices.
Optimized? Really?!
Most investment consultants will offer to use Mean-Variance Portfolio Optimization techniques to “optimize” your portfolio allocation. Unfortunately, what that term implies and what it really ends up meaning are quite different. The problem generally boils down to the cavalier manner in which consultants derive the optimization parameters (especially return assumptions) and the constraints placed on the optimizer, turning an otherwise beneficial exercise into little more than snake-oil. To understand these issues more fully, see our research paper, An Empirical Test of Mean-Variance Portfolio Optimization.
Everyone Else
Does It
Sounds like peer pressure, but we’re not talking about high school here. We’re talking about your performance reporting. Peer Groups, or Manager Universes, are often used to rank a manager’s performance. If you’re currently receiving performance reports for a portfolio, odds are it has these ubiquitous floating bar charts in it.
Don’t get us wrong, we’re all for grading on the curve, but as it turns out there’s more at stake here than the manager’s GPA. Looking at Peer Groups can actually be hazardous to your decision-making. To add insult to injury, including peer group analysis in your performance reports generally means at least a month’s delay in their delivery. So much for timely decisions. To find out more about why we counsel against including peer group analysis in your regular performance reports, check out our research paper, Succumbing to Peer Group Pressure.
Measuring Ourselves
Do you find it odd that your consultant spends so much time measuring the investment performance of others, but zero time measuring their own? We do, and that is why we created and publish composites of our own performance for prospects to see. Click here to see them for yourself.