Model Portfolio & SMA Strategists Showcase - Flipbook - Page 25
SMAs & MODEL PORTFOLIOS
QUICK MATH
The GIPS® floor, not
ceiling
GIPS compliance confirms a strategy’s
returns are calculated and reported
honestly. It says nothing about whether
those returns are any good. A GIPScompliant strategy with mediocre
performance is still mediocre. The
compliance just means you can trust the
mediocrity is accurately measured.
with mediocre returns is still mediocre.
The compliance simply means you can
trust that the mediocrity is accurately
reported. It’s a floor, not a ceiling, and
it’s worth treating it exactly that way in
a due-diligence checklist.
BUILDING THE CHECKLIST
A working due-diligence framework
for a model or SMA strategist should,
at minimum, document the following:
manager tenure and team stability,
ownership structure and succession
plan, a plain-language description
of the selection and sell discipline,
rebalancing frequency and discretion,
stated asset-capacity limits where
relevant, full stacked fee disclosure
across every layer the client will actually
pay, GIPS compliance status, any
available third-party rating and its
basis, and, critically, covered in full
in the performance chapter (p. 29), a
performance history evaluated with real
skepticism about how comparable that
history actually is to what a live client
account would experience.
None of this is exotic. It’s the same
discipline a careful advisor already
applies to fund selection, extended
to a part of the market that too often
gets a pass because “institutional” and
“professionally managed” sound like
due diligence have already happened
somewhere upstream.
Strategy Types & Risk Budgets
N
ot every model portfolio
or SMA is trying to do the
same job. Before evaluating
performance (p. 29) or building a
tax-efficient transition plan (p. 36),
it’s worth being precise about what
category of strategy is actually under
consideration, because comparing
a core allocation model to a tactical
overlay on the same performance chart
is comparing two different tools built to
solve two different problems.
CORE VERSUS TACTICAL
Core strategies, whether equity or
fixed income, are designed to closely
track broad market movements
with modest, disciplined deviation.
They’re the workhorse allocation for
a buy-and-hold client whose main
need is diversified, low-cost exposure
managed with some professional
oversight, including rebalancing
discipline, tax-loss harvesting where
applicable, and occasional fund or
security substitution, without dramatic
bets on market direction.
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Between core and tactical sits a third,
distinct approach worth naming rather
than treating as a blend of the other
two: factor-based, or “smart beta,”
strategies. Rather than weighting
holdings by market capitalization (core)
or making discretionary or rules-based
shifts between asset classes (tactical),
a factor strategy systematically tilts a
portfolio toward specific, empirically
studied characteristics, including value,
quality, momentum, low volatility, or
some combination, using a rules-based
WHEN TO REACH
FOR THIS
Boutique manager vs.
diversified platform
Client needs a satellite position in one
specific discipline, style purity matters
more than breadth, and the account can
tolerate real key-person and capacity
attention: boutique. Client needs a full
allocation solution with institutional-grade
risk infrastructure spread across many
strategies: diversified platform. Rarely a
wrong answer, just a different job.
