At HCR, we believe that modern markets require modern thinking.

Times change. Markets change. Are your portfolios keeping up? If you are using traditional, old-school asset allocation techniques, the answer is probably, no. At HCR, we utilize what we call Modern Portfolio Design™ when developing portfolios for clients and our financial advisor partners.

Traditionally, a diversified portfolio has focused on asset class allocation and has been split among U.S. stocks, foreign stocks, bonds, and cash. More recently, the concept has been expanded to include additional asset classes such as real estate, gold, commodities, emerging markets, and foreign bonds.

However, since the turn of the century, investors have learned that traditional diversification techniques focused only on asset classes did little to protect them from the two brutal bear markets that occurred within a nine-year span. As such, HCR believes that classic asset allocation alone has fallen well short of investors' expectations - and more importantly, their needs.

If the brutal bear cycles of 2000-02 and 2008 taught investors anything, it is that traditional diversification is not enough in today’s fast-moving environment.

HCR’s Modern Portfolio Design™ approach takes a different tact. Instead of diversifying solely by asset class, we diversify client portfolios across multiple strategies, managers, and investment methodologies in order to help hedge against whatever comes next.

What is "Modern" Portfolio Design™?

A modern approach to portfolio design is created by moving beyond the traditional strategy of mixing of asset classes. At HCR, we believe that Modern Portfolio Design™ is achieved by incorporating:

  • Multiple Strategies
  • Multiple Managers/Research Providers
  • Multiple Investment Methodologies
  • Multiple Time Frames 

… And then diversifying across all of the above in a customized fashion in order to meet the individual needs of each and every client - All in a single portfolio.

The Goal: "Boring Outperformance"

Simply put, the primary goal of this "modern" approach to portfolio design is consistent, long-term investment performance.  There is obviously no such thing as “set it and forget it” in today’s investment markets. But we believe employing the use of multiple strategies, managers, and investment methodologies may be the next best thing.

HCR's approach to portfolio design strives to achieve what we call "boring outperformance." While there are never any guarantees in investing, our objective is to create portfolios that attempt to produce benchmark-like returns in "most years." Then when something really important happens to the markets - such as a bear market in stocks or bonds - our portfolios are designed to manage risk and make every effort to protect capital. 

No Strategy Works In All Market Environments, So...

By utilizing a modern diversification approach, we believe investors are more likely to allow their strategies and managers the time needed to perform optimally. Remember, no strategy, manager, or investing style works well in all market environments. In reality strategies, managers, and styles/methodologies go in and out of favor in terms of performance – all the time.

Instead of investors fretting about their portfolio failing to keep up with a particular benchmark such as the S&P 500 due to a strategy experiencing a period of underperformance, those using a more modern approach can rest assured that diversifying in a more modern fashion - by employing multiple methodologies, multiple strategies, and multiple managers - may help to minimize this risk during times of market stress.

In short, we believe a more "modern" approach to portfolio design and diversification affords investors the opportunity to “buy and hold” their portfolio allocation for long periods of time.

Avoiding The "Singular Failure"

Another objective of our approach is to avoid what is referred to as a “singular failure” in a portfolio. All too often, investors wind up with portfolios that are heavily concentrated in a single strategy or with a single manager and/or a single investment methodology. Such an approach means that the entire portfolio is subject to underperformance (or worse) when the strategy, manager, or methodology experiences a rough patch. And if there is one thing that is certain in the investing business, it is that ALL investment strategies will experience periods of time when the approach utilized falls out of favor.

So, instead of a concentrated portfolio that is subject to the risk of a “singular failure,” doesn’t it make more sense to diversify that risk properly across multiple managers, strategies and methodologies?

How to Develop a "Modern" Portfolio Allocation

This is the easy part. Our team of investment professionals will customize an allocation designed to meet your needs, objectives and risk tolerance.

Have Questions?  Contact Heritage or give us a call at (303) 670-9761

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