Strategic changes to my model portfolios

I have been for some time considering changes to my model portfolios. This has been precipitated by questions I have about traditional models that I was exposed to while I held my book of business at Genworth Financial Wealth Management and, prior to that as a financial planner in the capacity of Investment Advisor Representative at AXA Advisors.

Elsewhere here, I describe my practice philosophy as adhering to principles of Modern Portfolio Theory. MPT places great emphasis on asset allocation. Model portfolios are guides to investing client funds by diversifying their investments in mutual funds that hold various distinct classes of assets. Also elsewhere here I  list those I use. The models reflect a range of investment objectives and risk tolerance from “Capital Preservation” to “Aggressive”. The exact models I use are proprietary so I don’t display them to the public.

While my book of business resided at Genworth Financial Wealth Management I employed various institutional wealth managers to compose model portfolios for my clients. I assessed their risk tolerance and investment objectives and based upon these I would advise them to use a model portfolio of one of the wealth managers. Because these wealth managers held different views, they composed different models. Some were “strategic” some were “tactical”. The tactical portfolios could change their asset allocations for asset classes with some limitations. For example, they could have a target of 20% for Domestic Large Cap Growth but they could “overweight” or “underweight” that 20% in a range from, say 10% to 30%. They would adjust the allocation based upon their best guesses for near term Market moves. I don’t tactically adjust my portfolios.

Recently I attended a workshop organized by the Tucson Chapter of the Society for Chartered Financial Analysts and the Financial Planners Assn. Tucson Chapter. The presenters were from Oppenheimer Funds. Brian Levitt, economist and head of capital markets research for Oppenheimer Funds spoke extensively about the outlook for financial markets globally. The upshot of the presentation is that it is time for investment advisors to examine their views on allocating stocks and bonds in light of the increasing market capitalization of non-US companies. He stated that at this time US based companies own just 43%  of the share value of all the corporations publicly offered in the world. It is for this reason I am increasing the proportion of foreign stocks in bonds in my portfolios.