delving further into alternative investment options: how can advisors effectively dampen volatility,...

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IFG Wealth Management Forum 2016

Delving Further Into Alternative Investment Options

Presented by

Eric S. Barlow, ChFC

Managing Partner, CEO

Outline



Section 1: Investment Management

1. Typical Portfolio Allocation

2. Stock/Bond Challenge

3. Correlation in the Market

4. P/E Ratio

5. Private Equity & Real Estate

Section 2: Making Data Relevant

1. Liquid Money Management

2. Utilizing Statistics

3. Portfolio Structuring Capabilities


Investment Management: Typical Portfolio Allocation


www. AndinaFamilyOffices..com Eric S. Barlow, ChFC

Investment Management: The Stock/Bond Challenge



Source: FRED Economic Data

10-year Treasury Rate

10-year US Bond Yields • Bonds used to be a great defense

• Rates can only go up

• Inverse relationship between

interest rates and the value of

bonds


Investment Management: Correlations



During times of crisis, increases in volatility are

naturally related to increases in correlations

Correlation data between 1997 - 2012


Investment Management: Price-to-Earnings (PE)



Source: Crestmont Research


Investment Management: Price-to-Earnings (PE)





Investment Management: The P/E Head Fake



About every five years or so, the reported P/E will reflect the opposite

signal rather than a more rational view of P/E valuations.

Example 1: The reported value for P/E in early 2003 reflected a fairly high value of 32 just as

the S&P 500 Index had plunged to 800 (E had cycled to a trough of $25 per share). A P/E of

32 generally screams “sell” to most investment professionals; yet, in early 2003, that was a

false signal! A more rational view using one of the business cycle adjusted methods reflected

a more modest 18. In a relatively low inflation and low interest rate environment, the scream

should have been “buy”.

Example 2: Several years later, in 2006 (after an unusually-strong run in earnings growth), E

peaked at $82 per share as the S&P 500 Index was hesitating at 1500. Most market pundits

were recommending a strong “buy” due to a calculated P/E of only 17. Yet, using the rational

business cycle-adjusted methodologies, the true message was “STOP”—P/Es were saying

sell, with P/E more than 25.



Investment Management: Yale Foundation



Yale University

Educational Inst'l Mean

Allocation Difference

Domestic Equity 3.9% 19.3% -15.4% Fixed Income 4.9% 9.3% -4.4% Natural Resources 8.2% 8.5% -0.3% Foreign Equity 11.5% 22.0% -10.5% Absolute Return 17.4% 23.3% -5.9% Real Estate 17.6% 4.2% 13.4% Private Equity 33.0% 10.0% 23.0% Cash 3.5% 3.5% 0.0%

Source: Yale Annual Report 2014


Investment Management: Illiquidity Premium



Source: Investopedia

What is the ‘illiquidity premium’?

A premium that investors will demand when any given

security can not be easily converted into cash, and

converted at the fair market value.


Investment Management: Private Equity



Source: The K Fund Report 2016

• Invest in company growth strategies offering best opportunities at the

time, stay flexible

• Collaborate and co-invest with great partners to maximize

opportunities, add expertise and reduce risk

• Invest in companies supported by mega trends, (e.g. IT/Software/Big

Data, healthcare) that can efficiently scale in size


Investment Management: Real Estate



Source: Blue Field Fund Overview 2016

• Research-intensive and risk-

focused approach to

underwriting

• Collaborative approach to deal

sourcing and syndication

• Co-investment with Strategic

Partners on deal by deal basis

• Diversify across asset class,

project manager, market, and

vintage


Making Data Relevant: Liquid Money Management



Performex® Overview:

• Data becomes more relevant

• Uniquely analyzes 25,000+ money managers

• Ability to structure a portfolio with the best managers

complementing each other

• Managing downside to enhance consistent compounded growth


Making Data Relevant: Using Key Attributes



• Annualized Return

• Market Correlation

• Growth of $100

• Compounding Months %

• Compounding Contribution %

• Annualized Standard Deviation

• Risk Adjusted Returns

• Minimum 3 month Rolling Return

• Minimum 12 Month Rolling Return

• Total 5 Worst Draw-downs

• Total Negative Months

• Growth/Draw-down Ratio

• Return During Market Negative Months

• Return During Market Positive Months

Compounding

Volatility

Entry Timing Risk

Downside Risk

Cost of Defense

Return

Correlation to S&P 500


Making Data Relevant: Utilizing Statistics



Period: Dec 2005 – Dec 2015; 120 Months


Making Data Relevant: Portfolio Structuring Capabilities



• Client 2 (C2)

• Moderate risk

• Client 1 (C1)

• Higher risk

• Client 3 (C3)

• Low risk

Different Client. Different Objectives.

Tailored Allocation.




The whole is sometimes better than the sum of parts

Period: Dec 2005 – Dec 2015; 120 Months


Making Data Relevant: Portfolio Structuring Capabilities

Why Meaningful Analytics Matter?



Specific objectives and monitoring guidelines (O&G) are applied to the portfolio.

1. Much higher probabilities and confidence levels relative to the future

achievement of the defined long term goals.

2. With same, above market portfolio growth can be accomplished (over full

market cycles).

3. This discipline consistently applied offers considerably improved ways to

communicate with clients and to maintain peace and mitigate internal

conflicts.


Questions &

Answers


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