Barron’s offers a yearly breakdown of asset allocations for the leading 40 private wealth managers. While not necessarily advisable for all investors to follow, comparing your portfolio construction to these money mangers’ portfolio asset allocations may provide a few interesting personal assessments.
Some thought-provoking changes to the average allocation of these money managers over the past three years have been the decline in fixed income’s allocation from 33% to 26%. The major backdrop for this movement is the current low interest yield and subsequent higher current risk levels to rising interest rates. This restructuring represents a 21% reduction in fixed income allocations over the past 24 months.
Where is that money going? It would seem to be landing in higher allocations for foreign stocks in developed countries along with higher alternative hedge funds and private equity allocations. Below is a table of Penta's annual asset-allocation survey, as published by Barron’s, for 40 leading wealth management firms. The table reviews the average asset allocations as reported for the past three years.
Asset Classifications 2014 2013 2012
Stocks Total 51.1% 48.0% 44.7%
Stocks US 31.0% 30.0% 30.7%
Stocks Developed 14.0% 10.0% 8.4%
Stocks Emerging 6.0% 7.0% 5.6%
Income Total 25.8% 29.0% 33.2%
Income US 23.0% 25.0% 29.4%
Income US High Grade 19.0% 21.0% 23.8%
Income US High Yield 4.0% 4.0% 5.1%
Income Developed 1.0% 1.0% 1.8%
Income Emerging 1.8% 2.5% 2.1%
Alternative Total 20.4% 20.0% 17.7%
Alternative Real Estate 3.1% 3.0% 2.8%
Alternative Commodities 1.9% 3.0% 3.4%
Alternative Hedge Fund, PE,
Other 14.1% 13.5% 11.7%
Cash 2.8% 2.6% 3.9%
Source: Barron’s and GuidingMastInvestments.com
Stocks, in general, increased in allocation by 13% with US and emerging markets allocations remaining relatively flat. Developed country equities exposure almost doubled, from 8.4% to 14.0%.
As one measure of diversification, this table should provide some additional insight into your own portfolio construction. To duplicate this table using your own investment is pretty easy. List all your holdings and their value by position. Then, list next to them the appropriate broad category from the table above. Sort by the categories, sub-total each, and generate a percentage of the whole portfolio. Mutual funds are easy to identify by their name and a quick review of their top 10 holdings.
While each investor should know their own personal risk profile and a “one size fits all” approach to investing might be unrealistic, comparing various portfolio designs should create for some self-reflection. Ask yourself, “Do I have exposure to all these asset classes, regardless of allocation percentage? And if not, why not?”
It is important for investors to appreciate the interconnectability of their individual investment selections to the whole portfolio construction. This simple table is one additional tool investors can use to better analyze their holdings and to hopefully better match individual risk profiles with investment selections.
The entire Barron’s article can be found here:
The 2014 survey allocation table can be found here:
http://barrons.wsj.net/public/resources/documents/BARRONS_PRIVATE_EQUITY_ALLOCATIONS_2014.pdf
Disclosure: No positions
I appreciate your time and interest in Guiding Mast Investments, George Fisher