The renowned value investor and GMO co-founder, Jeremy Grantham, has stated that the US market is now in the fourth superbubble of the last hundred years.
In this recent article, Grantham examines the situation. "Previous equity superbubbles had a series of distinct features that individually are rare and collectively are unique to these events. In each case, these shared characteristics have already occurred in this cycle. The checklist for a superbubble running through its phases is now complete, and the wild rumpus can begin any time".His prediction is a drop of almost 50% in US equity markets.
Investors expect guidance and concrete actions
In an environment such as this, investors expect guidance and prudent actions to minimise risk. The long game is not acceptable to investors who need to fund their lifestyle from capital within the next two decades or more. Significant volatility impacts all investors in the long term.
The standard solution to corrections is a rush to blue-chip assets. However, in a superbubble scenario, the answer is actually the cause.
"This has been exactly how the great bubbles have broken," Grantham said. "In 1929, the flakes were down for the year before the market broke; they were down 30%. The year before they'd been up 85%, they had crushed the market."
In such conditions, the traditional 60/40 portfolio stocks
offset by bonds are "absolutely useless"
Grantham favours investments in value stocks trading outside the US, such as Japan and emerging markets, and resources, gold, silver, and cash.
Implementing a meaningful solution
The dilemma for many advisers is how to implement diversified or differentiated risk-managed portfolios, and to do so at scale. If done one by one, the quantity of reports and client authorities to enact investment change is prohibitive when operating under a traditional advisory model.
The answer lies in using managed account portfolios for efficiency and scale, but that are actively managed using Dynamic Asset Allocation to target specific risk and return rates. Portfolios constructed on this basis use a much broader and diversified asset base to minimise risk and achieve growth. The focus is on the future value of individual assets rather than allocating asset classes that are assumed to adhere to historical long-term risk-return averages. The aim is to smooth volatility and mitigate drawdown risk.
When managed under a professionally managed model, full-time portfolio managers can adjust asset allocation and underlying investments according to the circumstances in real-time. This adds value by removing the delay and cost of inaction present under the traditional approach.
One-stop solution for advisers
The Dynamic Asset Managed Account solution is built around a set of portfolios designed to achieve specific risk-adjusted returns across short, mid and long-term time horizons. The suite of portfolios can be easily blended by advisers using the proprietary Portfolio Construction Tool to target investor-specific goals. Together with the managed account solution, they allow advisers to provide targeted client-specific investment portfolios that are positioned and able to adjust to changing circumstances.
The solution provides a more client-centric and business-efficient model. It's a better fit for today's regulatory environment and today's investors' expectations.
Most of all, choosing Dynamic Asset provides advisers with an achievable, scalable, efficient solution to managing client portfolios to the current and expected market conditions.
The solution is easy to implement and available on the HUB24, Allan Gray and Mason Stevens platforms across both investment and superannuation.
There is something you can do to help clients through the bubble trouble.
About Dynamic Asset
Dynamic Asset is a transformational business solution for financial advisers. Established in 2013 by financial advisers, Dynamic Asset provides class-leading managed account investment portfolios and business solutions for Australian financial advisers and their clients. The portfolios are designed to meet particular investment goals across liquidity and risk-return criteria.
The differentiated portfolios are used to manage client portfolios either individually or blended into an overall portfolio to suit their unique investment goals. The range of portfolios across super and non-super means that Dynamic Asset provides the most complete whole-of-business Managed Account solution in Australia.
Please contact us for more information on the Dynamic Asset managed account solution.
