The performance of the All-Terrain strategy composite in its first full calendar year was good (see performance on page 5). It finished up a little over 2% whereas the Vanguard balanced fund finished down almost 17%. That’s a big differential – and it happened for the right reasons.
All-Terrain almost completely avoided mainstream stocks and bonds which were the biggest detractors from performance. In addition, it reached beyond more conventional asset classes to improve diversification and to supplement returns. In short, 2022 proved to be a terrific proof of concept for the new strategy.
The main challenge for the new year will be maintaining a strong performance edge, but I don’t think that is going to require doing anything substantially different. A large proportion of investors have still not recalibrated to the new investment landscape. This means risk management will be the number one priority which means avoiding stocks and bonds.
The emerging challenge will be attracting new business and new assets to the strategy while there is still plenty of time to prevent a lot of anguish (and investment losses). Despite strong performance and a sounds strategy, I still expect this effort to be an uphill climb. The reason is there is a lot of inertia regarding changing advisors. Most of the time people only switch after they have lost a lot of money.
Further, incumbent advisors don’t like to lose business and normally go to great efforts to retain it. I know because I used to work for bigger shops that exerted a lot of effort to retain business.
Indeed, it struck me that more effort was exerted to retain business than to make difficult, but important investment decisions. This realization was a big reason I decided to start Areté. It’s not that bigger shops don’t have really smart people or large research budgets. It’s that they tend to leverage those resources more to the business of gathering fees than to the outcome of making clients better off.
So, if you know someone is looking for a different/better investment service, please let me know – I would really appreciate it!
In the meantime, I will continue doing what I do – sharing my thoughts about markets and portfolio strategy with clients and other interested parties through the “Observations” newsletter. Look through the archives and it is easy to trace how my thinking has evolved from the start of the pandemic through to today. I also put out The Areté Quarterly to provide a more detailed analysis of the investment strategy.
Thanks! And please don’t forget, if you ever have questions or clarifications, let me know at firstname.lastname@example.org and we’ll get things straightened out.
David Robertson, CFA
CEO and founder, Areté Asset Management