The top conversations on APViewpoint last week were started by thought leader Michael Edesess and member Adam Butler. They generated thoughtful discussions on why DALBAR is dead wrong on investor versus fund performance and the art and science of portfolio optimization.
Michael Edesess’ article on The Fallacy behind Investor versus Fund Returns (and why DALBAR is dead wrong) received 26 comments from members discussing whether investors tend to underperform the mutual funds they own. Advisors agreed that DALBAR needs to be more transparent about the calculations behind its claims, but that their methodology is not “dead wrong.” Members argued that Edesess failed to make a compelling argument about the impact of inadvertent market timing on dollar-weighted returns. In response, some contended that Edesess’ main point was to show that the “dollar-weighted returns can be substantially different from zero even for an investor who is not trying to time the market or chasing performance.” Ultimately, advisors concluded that “we really don't know exactly how much emotionally driven buy high/sell low behavior is taking place (although we all agree it is significant), and the DALBAR study doesn't hold the answer.”
Adam Butler answered a dozen member questions following his recent APViewpoint webinar, New Research: The Art and Science of Portfolio Optimization, the second presentation of a fourpart series. In this webinar, Butler explained how portfolios can be optimized to achieve the best tradeoff between risk and return. The subsequent Q&A conversation received 13 comments in which Butler discussed the risk theories he presented in greater detail. He explained that a risk-parity portfolio can be used as a starting point to balance off against other active views, and that it can fare well in a rising interest rate environment. He also explained that naive risk parity has a compelling argument based on turnover and benefits, but warned that it is highly sensitive to the investment universe and volatility estimates. If you missed the live webinar, you can view an ondemand replay on the APViewpoint events page here.
APViewpoint will be hosting its next CE eligible webinar, A Powerful New Tool to Comply with the DOL's Fiduciary Rules, on Thursday, July 28, at 4:15 PM ET. In this presentation, the founder and CEO of Income Discovery, Manish Malhotra, will provide an overview of the new rules and show how Income Discovery’s interactive toolset can aid in this process.
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Marianne Brunet is a financial markets analyst with Advisor Perspectives.
