While investing in hedge strategies as a core component can be a prudent risk management strategy, it is critical to understand the risks of overinvestment. This blog delves into the complexities of allocating to hedge strategies, as well as the importance of setting realistic expectations for yourself and your clients.
Rick Gonsalves
Benchmarking might seem simple, but using the wrong one can lead to major misunderstandings between you and your clients. This article explains why comparing a diversified, equal-weight strategy to a large-cap index like the S&P 500 doesn’t make sense—and how correlation plays a key role in setting expectations. We highlight why iQUANT FactCards include up-market and down-market correlation data, how to think about benchmarks when building full portfolios, and why single-model portfolios demand extra attention. Misunderstanding how a model behaves—whether it's an ETF, mutual fund, UIT, or an iQUANT strategy—can erode client trust. It takes a little effort to get this right, but it’s time well spent.
Rick Gonsalves
Some advisors are taking a simple, practical approach by building just two core portfolios—one aggressive, one conservative—and adjusting the mix based on each client’s risk level. For example, a moderate investor might get 60% aggressive and 40% conservative. It’s a clean way to customize without overcomplicating things. Many use the iQUANT Portfolio Optimizer to build these sleeves, and some even use the Sector Extremes Portfolio as their aggressive sleeve since it’s updated and reconstituted quarterly with a balance of high-growth and defensive names.
Rick Gonsalves
Too often, investment professionals judge a portfolio by its individual parts rather than its overall construction. But just like raw eggs and flour aren't appetizing on their own, no one ingredient defines the quality of the cake. A hedge asset isn't supposed to outperform—it’s meant to protect when stocks falter. Ignoring its role because it underperforms in bull markets misses the point entirely. Smart portfolio management is about how the components work together, not how they perform in isolation.
Rick Gonsalves
More advisors are using term-maturity bond ETFs instead of individual bonds to build simple, efficient bond ladders. This guide breaks down the key differences, helping you weigh diversification, control, cost, and convenience—so you can choose the right fit for your fixed-income strategy.
Rick Gonsalves
In 2022, many bond funds fell 10–15%—and that includes dividends. Strip out the dividends, and the loss on principal alone was often closer to 15–20%. Unlike individual bonds, which mature at par and provide a clear end date, bond funds offer no such certainty. Their NAV fluctuates daily, with no guarantee of recovery by any specific time. That’s the critical difference: NAV is not a maturity date—and that matters when your client needs their money back - or need reassurance.