Broker Check

Are You Missing Something?

| May 26, 2017
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A recently published "Asset Allocation Update" from a Trust Company/Investment Advisor:

"At its May meeting, (our) Allocation Committee (AAC) determined that a higher relative allocation to developed international equity markets is appropriate under current market conditions. Developed international markets consist primarily of equities in Europe and Japan, which comprise over 85% of the MSCI Europe, Australia, Far East Index (EAFE).

As a refresher, last year we reduced recommended allocations, primarily on perceived rising political and currency risk in Europe, as well as an earnings tailspin in the emerging markets. In January of this year, we communicated that while we were sticking with our underweight position, our next move would likely be to increase allocations should some of the perceived risks dissipate."

We're often asked by prospective clients if we provide this sort of "proactive management," shifting assets around when opportunities seem to present themselves.  Secretly, I bet, even clients worry they're missing something and have wished from time to time that we would/could do this.  But we don't.  

Traditional active management, whether it's security selection or (in this case) market/asset class timing, doesn't work.  It sounds sophisticated, and investors tend to perceive value in it for a while until they discover that it subtracts more value than it adds.  Servo is certainly in the small minority of the investment industry that believes this.  But our unique philosophy policy has aided clients far more than it's hurt.

By the way, our two best-performing portfolio asset classes over the last twelve months (through 5/24) were on the international side: large value and small value.  The former is over 58% invested in Europe, the latter is almost 52%.  The DFA Int'l Value Fund has gained +22.8%, besting 89% of active managers and outperforming the MSCI EAFE Index by 6.2% (and the MSCI EAFE Value Index by 4.0%).  The DFA Int'l Small Value Fund gained +21.4%, beating 84% of active managers and outperforming the MSCI EAFE Small Cap Index by 4.6%.

Are you missing something? I don't think so.

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Past performance is not a guarantee of future results. Mutual fund performance shown includes reinvestment of dividends and other earnings but does not reflect the deduction of investment advisory fees or other expenses except where noted. This content is provided for informational purposes and should not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products, or services.

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