Advisors work hard to develop plans that reflect the financial needs and goals of their clients.
“We do engage in a very systematic process to determine what the appropriate asset mix is,” says Brian Tipple, chief investment officer at Key Private Bank in Cleveland. Beyond annual rebalancing, are there other ways to improve a portfolio?
Some advisors use tactical shifts in asset allocations to take advantage of trends expected to last beyond the short term. Tipple’s firm does, but always with an eye toward the client’s objectives. “Moving away from that long-term asset mix incorporates risk as well as opportunity,” he says.
While many advisors who use a tactical approach do so around the edges of a strategic allocation, some go all in. “I’m a great believer in tactical allocation,” says Roy Blumberg, director of client portfolio management at the Philadelphia Group in King of Prussia, Pa. “It doesn’t make a lot of sense to just draw a pie chart and say okay here’s my allocation.”
Blumberg notes that for long periods of time, the buy-it-and-forget-it style of investing yields poor results. “The goal of tactical is to be always looking for asset classes where valuations are more attractive,” he says, adding that his goal is to stay with investments as long as the reasons they were purchased remain valid. He cautions that the approach does not mean trading in and out.
In the current environment, Blumberg has replaced long- and intermediate-term bonds with funds whose managers have an unconstrained strategy. He’s also using floating rate and private debt instruments.
For Key Private Bank clients who have a growth strategy, Tipple currently recommends a zero allocation to cash. “We think there are better ways to add value than to hold cash in those kinds of portfolios,” he says.