Performance

A few weeks back, we undertook to survey our readers to get a better sense of their priorities when it comes to wealth and portfolio management. The survey is still open if you have not had the chance (10 quick questions: click here) to participate.

However, I was intrigued by the responses to this one particular question thus far and, as it is with survey's, likely  requires another follow-up survey at some point in the future just on this one particular topic.

"What is the single most important factor when deciding to allocate to a Portfolio Manager / Advisor to manage? (click one)".

To date, fees were not a priority factor. In the world where I live, where we are always trying to find cost savings for our clients, because over the long-term, annual fees and costs can eat up a significant amount of your compounding ability, I am initially, somewhat shocked.

Then again, in this world of the need for immediate gratification, I am not so shocked that some 55% put performance as the single most important factor (although the question does not stipulate performance over a given time period, so it is subject to some interpretation).

However, I am astonished (although I shouldn't be because I study Behavioural Finance) by the fact that historical returns, (despite the constant warnings and regulatory requirement to disclaim that past results are not a guarantee of future returns) are still used as a guidepost for the future. Perhaps it is consistent long-term returns averaged over multiple years vs. "the next best thing" (that has already happened), but pardon me for my skepticism.

Interestingly, performance is a relative thing: performance as compared to what? Which always begs the question of how much risk you want to take to achieve a certain performance. Less than 10% of our respondents put risk management as a priority. All the more interesting given what we saw last December, which is, in our opinion at High Rock, a warning shot of what we can expect over the next 6 months or so.

Why take more risk than you need to, just to get a performance that could disappear in a matter of a few trading days?

By mitigating the risk that High Rock Private Clients had with asset classes that are not necessarily correlated to more volatile stock markets, most clients (depending on their allocation strategy) have experienced growth that more than re-captured unrealized portfolio losses from all of 2018 in just the first three months (first quarter) of 2019.

We shall be reporting this to our clients in their regular quarterly reports, to be issued over the next week or so.

The challenge going forward, of course, is to capture that performance (and not give it back) by continuing to mitigate risk. That is the hard, behind the scenes work that goes into the managing of portfolios. That is how we earn our fees that appear not to be a priority.