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ASSET ALLOCATION ADVISOR CURRENT ISSUE
In the current issue of the Asset Allocation
Advisor, you’ll find:
The View from the Land of Steady Habits: Investing in
Risk
Wealth creation requires the assumption of risk. The
task of investment managers and trustees is not to avoid
risk but to seek it out and assume it intelligently in
such a way that capital is invested with a wide range of
risk exposures. View a
copy of the article.
2006 Revisited
With the exception of real estate and, to a lesser
extent, some foreign equity markets, capital market
returns in 2006 do not have significant implications for
expected returns and asset allocations.
Capital Market Outlooks
Stock buyback programs and increases in export sales
volume result in an upward revision to projected
earnings growth for U.S. stocks. Changes in the bond
market appear to signal a sea change in interest rate
expectations. Some foreign equity markets offer lower
returns to U.S. investors after significant
appreciations in their currencies.
Quantifying and Managing Risk Tolerance: Part II
A traditional average balance spending formula can
smooth out much of the variability in endowment returns
and spending support. It cannot deal, however, with the
uncertainty of future returns. Risk reduction through
asset allocation and/or portfolio insurance is still
necessary. Although an all-equity portfolio would have
made most organizations richer, they could not have
survived the variability of returns.
Efficient Frontiers and Optimally Risky Portfolios
With this issue we inaugurate reporting of resampled
efficient frontiers and the ten percent portfolios.
Revisions to expectations and the broader
diversification of portfolios along the resampled
efficient frontier result in more efficient portfolios.
Asset Allocation – The Art and Science: the Limitations
of History
In the final analysis, we cannot rely solely on history
to develop capital market expectations. Short-term
averages are not reliable. Long-term averages may not
take into account long-term patterns that can only be
detected using advanced statistical methods.
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West Hartford