Consistency doesn’t have to be boring!
Author: Ash Weston, 8AM Global
At 8AM, we believe that the most crucial aspect in getting value from any retail investment, is consistency.
Many multi-asset managers still use Tactical Asset Allocation (TAA) as their primary point of differentiation with many demonstrating outperformance. However, the vast weight of research shows that it is nigh on impossible to do consistently in a human-led investment process.
Our view is that TAA is generally flawed when it is; human-driven, short-term in nature, seeking upside capture rather than capital preservation and driven by bigger predictive ‘calls’.
It is a commonly held (and understandable) misconception that humans predicting short-term market movements leads to consistent alpha over the longer term. This is simply statistically untrue. Not on average across the history of active retail or self-directed investing.
Active managers the world over fail to beat benchmarks over meaningful timeframes. Yes, this sweeps together a multitude of investment approaches, but tactical calls run through the MOs of many a portfolio manager to this day and the results are not sweeping andconsistent alpha outside of singular ‘trend-bucking’ examples.
Successfully predicting and then accessing the ‘turning point’ of any given investment factor or theme, within a timeframe that itself doesn’t erode upside (by nature of being “early”), based on human intuition and deployment of technical analysis, is statistically exceptional. Yet, this is the stock and trade of most multi-asset investment managers.
And unfortunately, compounding works both ways if a manager tries to unwind an active tactical position. A manager makes a call, it backfires, leading straight into chasing the loss trying to remedy the error, using the same flawed strategy as created it. The only thing that compounds is relative underperformance.
Consequently, at 8AM we’re strategic, and we only tilt our short term allocations based on consensus from the best crowd-sourced investment teams; we don’t sit and discuss macro trends and potential market events in order to outwit them.
8AM AQ Model portfolios have a passive base, with quant-screened active allocations when value is clear. We’re no naysayers of active management but it’s use must be managed and data-driven. Speak to us to find out how we can help manage your client portfolios
This content is intended for financial professionals only. These are the author’s views at the time of writing and may be subject to change. This content is not intended to provide the basis for any investment advice or recommendation. Any forecasts, figures, opinions, tools, strategies, data, or investment techniques are included for information purposes only.
The information presented is considered to be accurate at the time of production and has been obtained from or based upon sources believed by the author to be reliable and accurate, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. Please visit our Regulatory Information and Terms of Use pages for more information.