|Thursday, 14 October 2010 06:24|
Despite the very real possibility that we are headed towards the Next Financial Crisis with the Foreclosure Crisis a major catalyst, the Bizzaro Market continues to shrug off the Weak Labor Market. I thought I'd use this chance to briefly discuss our ENCORE portfolios. We have updated the ENCORE Portfolio packet, which is available for download on our Programs page. I'd encourage you to download it and take a look. There are a few questions that often come up regarding our ENCORE portfolios.First off, for those of you not familiar with what ENCORE means, it stands for Engineered, Non-Correlated, Optimized, Risk Efficient. That is a perfect explanation of what we are trying to do by blending our 4 investment programs. To assist our Business Partners, we created "off-the shelf" or "standard" ENCORE portfolios for various investor types. The packet includes all of those portfolios as well as some performance and risk statistics to help you better understand the characteristics of each one.
One thing you will notice is that we have added investment minimums for Qualified and non-Qualified accounts. As you are probably aware, mutual fund companies have different minimums for the two different types of accounts. TD Ameritrade enforces those minimums, which requires us to set minimums based on the investment allocations in our various trading systems. We have tweaked some of the ENCORE portfolios so that we can have lower account minimums. The return and risk statistics only changed slightly with these changes.
Here are some of the questions we frequently are asked:
1.) Will SEM automatically rebalance my clients back to the requested ENCORE?
A: No. We prefer the rep to go through the SEM Risk Questionnaire again with the client (available in a new single page format on page 9 of the ENCORE packet.) They can then send the Questionnaire to us and either request that we change ENCOREs or that we rebalance back to the original allocation.
2.) I noticed SEM changed the recommended allocations. Will SEM be changing my existing clients?
A. No. The periodic changes in ENCORE portfolios is mostly due to operational changes to allow for lower ENCORE minimums. The ideal operating range for the best risk/return portfolios in the given portfolios is broad, which means that these small changes do not make much difference in the overall portfolio. What I mean by "broad" is that we could change ARA from 20 to 25 to 30% and the return and risk statistics would only change slightly. Since optimizing portfolios is not an exact science we are attempting to put the clients in the wide area of the operating curve. We know that the future will not be exactly like the past, so it would be difficult to hit the exact perfect point in the future. Maybe 26.74% would have been the perfect allocation for ARA, but if 20 - 30% also performed similarly, we have confidence that we will be very close to the "perfect" point. We use the same procedure when optimizing trading system parameters like moving average lengths.
3.) Why doesn't SEM offer these in one account?
A. We would like to do that, but our experience is that over the long-run it is important for the client to see the role that each SEM program plays in the overall investment allocation. In upward trending markets, they should see programs like EGA doing well while INA may lag when compared to a stock market investment. The role of EGA is to provide exposure to these types of markets, while INA provides a non-correlated investment that has a very strong defense. During the down trending markets the opposite will likely be true. We are pursuing technology at TD Ameritrade that would allow us to have the best of both worlds, but it is a long process and will take a lot of testing and development. We are confident that at some point we will be able to offer both.
4.) Can I change the ENCORE allocations?
A. Absolutely! In fact we encourage you to use the Questionnaire on page 9 or the website form to request a customized allocation. Sometimes we can combine the taxable and non-taxable accounts into one ENCORE portfolio. We can also take into account other investments like a buy & hold 401k that cannot be moved. We also can help you allocate the money for clients that may not have the stated minimum for the various ENCORE portfolios. We can then send you the customized portfolio report for you to present to your client. We request at least one business day notice on these proposals, but the turnaround is frequently much quicker than that.