Dynamic Sleeve No Trick Portfolio Play

September 07, 2017

Current Implications
Core stocks and bonds have performed well in 2017, and even safe-haven assets such as 20-year Treasuries have joined the rally. As a result, a core domestic portfolio such as 60% SPY/40% AGG is enjoying historically high risk-adjusted returns. Below is a chart of the rolling one-year Sharpe ratio and historical quartiles.



The chart also shows that things have changed quickly and dramatically at times. As a result, having a robust plan in place can help mitigate risks and also tilt a portfolio toward stronger-trending assets during rallies.

Looking at the graph above and the aforementioned strategies is like watching a game tape of an upcoming opponent. You have an idea of what is likely to happen, but that doesn’t mean you can forgo thinking, “Well, what else could they throw at us?” Having a plan for the expected and a strategy for dealing with the unexpected is key to success.

A dynamic sleeve works the same way. If things continue, the portfolio would likely stay tilted toward the top end of its equity allocation. Should conditions change, it already has a built-in lever to begin de-risking the equity exposure.

For advisors wanting a complete portfolio that uses both core and satellite exposures with a comprehensive risk management framework, Newfound’s QuBe Model Portfolios offer an outsourced multimanager, yet customized solution with a zero overlay fee.

At the time of writing, Newfound held positions in the securities mentioned. Newfound is a Boston-based quantitative asset management firm focused on rules-based, outcome-oriented investment strategies. Newfound specializes in tactical asset allocation and risk management solutions. Founded in 2008, Newfound offers a full suite of tactical ETF managed portfolios covering global equity, U.S. small-cap equity, multi-asset income, fixed-income and liquid alternative asset classes. For more information about Newfound Research, call 617-531-9773, visit www.thinknewfound.com or email [email protected]. For a list of relevant disclosures, click here.

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