Adjusting the Course of Portfolio Design

Opiela, Nancy
June 2004
Journal of Financial Planning;Jun2004, Vol. 17 Issue 6, p66
Academic Journal
The article looks at some changes in portfolio design. Before making the first change, Harold Evensky, certified financial planner of Evensky, Brown & Katz in Coral Gables, Florida, notes that over the last five years his firm moved increasingly toward passive, index investing for a larger percentage of the portfolio, added Treasury inflation-protected securities and became major users of exchange traded funds. Although Evensky has lectured and written on the merits of a traditional multi-asset class, multi-style portfolio with a lot of managers and lots of moving parts, his belief that future equity returns were going to be modest prompted him to move to a core and satellite structure which he describes as a much simpler, cost-effective and tax-efficient strategy. Evensky defines core as investments made to capture market return, not to capture some active alpha. In contrast, the satellites are opportunistic investments. Kathleen Day reports that her firm adopted a core--asset allocated, tax-efficient stable investments that do not necessarily fit into traditional style boxes. She added another category she refers to as tactical or opportunistic, which includes alternative asset classes that have performed well the past years. The tactical part of the portfolio could include real estate investment trusts, hedge funds, high-yield and foreign bonds and TIPS--instruments that are more resilient to market moves. Today, investing for the long term does not simply mean buy and hold. Planners are stressing value of active strategic allocation, underscoring that their portfolio moves are not rooted in market timing. Interestingly changes in portfolio design are bringing many planners back to their roots in financial planning.


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