Enhancing Traditional Asset Allocation
The last few decades have proven mostly great for stock and bond investors. From 1980-2016, the S&P 500 Index has delivered 11.5% annualized returns, and interest rates have fallen steadily, benefitting bond holders. In that environment, diversification is easy: buy and hold balanced exposure to stocks and bonds and sit tight. These days, traditional buy and hold investing is riskier than in years past. Equity market valuations are near historical highs while global bond yields remain near record lows. Historically, current valuation levels are associated with low expected future returns. In addition, central bank activity and geopolitical dynamics continue to significantly impact asset class returns and volatility. Low implied volatility for most major asset classes suggests investors are complacent and vulnerable to seismic market dislocations. In the current market environment, it may be prudent for investors to utilize our risk-focused, dynamic asset allocation approach that can participate in market upside while protecting in downturns.
Martello’s Strategic Investment Portfolio (SIP) platform offers investors an adaptive total portfolio solution. The SIP process utilizes both strategic, top-down market analysis with tactical, bottom-up position selection. This combination of long-term valuation analysis and flexible portfolio exposures allows us to build more robust, diversified portfolios.
The SIP model is offered in 5 portfolio options (SIP 1-5) for varying client risk tolerances.
Strategic Asset Allocation
Hundreds of years of market history have shown that long-term returns are correlated to valuation; markets with low valuations generally produce superior long-term returns compared to more richly priced markets. We incorporate long-term valuation metrics into our strategic asset allocation targets.
- Equity Strategies: Increase allocation as equity valuations cheapen, decrease in high valuation regimes.
- Fixed Income Strategies: Decrease allocations in historically low rate environments, increase as bond yields rise.
- Alternative Strategies: Unconstrained strategies with an absolute return focus (not dependent on market direction for returns).
- Asset Class Min/Max: Allocations are bounded to certain minimum and maximum weights, based on investor risk tolerance.
Read Our Latest Market Valuation Commentary
After setting our target bucket exposures, we utilize adaptive strategies to select positions inside each portfolio bucket. We maintain a deep library of models to thoroughly analyze markets. Our process utilizes multiple model types including:
- Macro/Systemic: Market-based indicators that provide insight into the macroeconomic environment.
- Trend/Breakout: Signals that indicate a market is in a trend or breaking out from a recent range.
- Volatility: Market volatility signals guide our models to less volatile markets and help estimate risk.
- Relative Signaling: Analyze assets in a relative framework to tilt towards market leadership.
Contact Us for More Information
If you are interested in learning more about our SIP Portfolios, please fill out the form below to set up a meeting with our team.