InvestSense, the portfolio construction and asset consulting firm founded in October of last year, has announced the launch of its ValueSense Report (VSR), a quarterly subscription directed at financial advisers.
True to InvestSense’s forward-looking, valuation-based investment philosophy, the VSR aims to provide advisers with a view of expected risk and returns across the major asset classes. It is also designed to act as a reference guide for market and economic indicators and their relevance to investment outcomes.
Commenting on the VSR’s first edition, InvestSense director Fil Andronaco said that in an environment of competing market signals and views, InvestSense chose to anchor its analysis in long-term, slow-moving, valuation-based projections and work back from there. “The result is a three-tiered approach that is reflected in the VSR’s three sections: the Valuation Dashboard provides an objective, long-term estimate of expected returns, the second section delves into medium-term themes that could affect these estimates (like geopolitics, macro-economics, demographics etc…) and finally the Economic Summary looks at short-term indicators that tend to be quickly discounted by markets”.
InvestSense applies a common process for each asset class and places greater emphasis in descending order to the three aforementioned factors (valuation, medium-term drivers and near-term catalysts). The resulting asset allocation recommendations are appropriate for the medium-term, although InvestSense caution against an overly passive asset allocation approach in the current environment. “All these factors are changing all the time, while the first and pre-eminent area (valuations) can change radically overnight if market prices move substantially” said Andronaco. “This requires a proactive approach that is well communicated to investors. We will be called upon to periodically change our asset allocation recommendations, but when and how often will be determined by external factors, namely the market, as much as by our process”.
According to Andronaco, a central portfolio construction theme of our times is that bonds can not necessarily be relied on to provide diversification benefits in negative economic scenarios. “We are currently recommending an underweight to fixed income, and a retreat to the lower regions of the duration spectrum. To fill this gap, we look to a small handful of genuine alternative strategies to provide a reliable equity hedge, without overly compromising expected returns. The prevailing equity premium is a necessary component of an investment strategy where any growth is required yet we remain mindful that equities are just as capable of derailing the long-term portfolio strategy in the event of a significant bout of risk aversion.”
“We’ve designed the VSR to give advisers a straight-forward and transparent view, but the irony is that it may not make their life easier,” concluded Andronaco. “Readers might not like what markets have on offer and may find it difficult to explain it to clients despite our best efforts. However, we do believe that they are likely to thank us for raising some of these issues at some point in the next few years, just as their clients will thank them.”
