Performance
Headlines scream that markets are hitting all-time highs. Technology continues an incredible run that has not been seen in many years. Some are saying, "This may be the dot-com bubble all over again without the eventual crash. This time it’s different, technology can’t possibly go down."
But does it make sense to focus on a diversified strategy when a concentrated strategy seems to be in the headlines? It all comes down to risk and reward. And as a fiduciary, that matters to us.
Everyone would like as much performance as possible. Investors are comfortable with equity risk when markets are going up. And yes, it's understandable that investors would like the maximum performance as well to help you move towards your goals.
Performance helps everyone. The more performance you receive the better it is not only for your financial goals, but for us as a firm as well. But sometimes investment managers, as well as those they serve lose track of the dark side of chasing performance; risk.
Performance is impacted by risk. For example, the S&P 500 has done well because it is primarily a heavy tech-oriented index with the top seven positions significantly impacting returns (see below). Some think that the S&P 500 in all its forms contain equal percentages of each asset, that's not the case in the commonly quoted S&P 500 returns that you hear on the news.
Chart source: https://www.slickcharts.com/sp500
Data as of 6.10.24
If you look at the S&P 500 Equal Weight Index, this tells a different story. The S&P 500 Equal Weight Index allocates holdings on an equal basis. In other words, each position represents 1/500 of the index. This is reflective of the overall market and not just the technology world.
In the below article, here’s their definition.
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“The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance.”
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Source: https://www.spglobal.com/spdji/en/indices/equity/sp-500-equal-weight-index/#overview
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We are always considering risk when we make decisions in portfolio strategies. On occasion that may seem to be the imprudent move as markets race forward towards record highs. But it’s important to keep in mind that markets can just easily turn the other direction on a moment’s notice. Today’s hyped stock could be the next major portfolio killer. Valuations matter and some industries right now have very high historical valuations.
But let’s say you just simply want more return and you’re willing to take the risk.
You got it. We can adjust portfolio strategies for your comfort level.
We will always share with you what we see and outline our concerns. But in the end, we are your money manager and it’s your money. If you would like us to adjust and take more risk, the party is not over in the equity markets. There are many years of returns down the road and if your horizon is long enough, perhaps you can live with that volatility.
Please do let us know. We want to do what you would like us to do. Just keep in mind that one of our roles as your fiduciary manager is to be aware of risk and fluctuation; your hard-earned assets deserves that attention.
Disclosures: DWM Investment Management Services are performed on a discretionary basis (unless otherwise noted DWM investment advisory services agreement).
Investment strategies implemented by DWM are susceptible to market fluctuations and have the potential for investment loss. DWM does not guarantee any investment results or performance.
The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.
The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same companies as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight.
The Indexes referenced cannot be invested in directly and Index returns do not include fees or expenses. Index returns are in no way a reflection of the returns of a client account.
DWM currently holds Apple Inc. (AAPL), Amazon.com, Inc. (AMZN), Alphabet, Inc. (GOOGL) and Microsoft Corp (MSFT) in DWM managed portfolio strategies.
