Time for a shift in your asset mix?

There are lots of people that offer up market predictions. Far fewer in number are those who command a great deal of respect, based on their past record.

It’s a rare thing in the money management business to get an up-to-the-minute glimpse at somebody else’s asset allocation. Your mix is your mix, you never share that mix with a competitor, and never ever do you get to see theirs.

Your asset mix

What can you learn about asset allocation from a mutual fund’s published portfolio?

Sometimes you can get an idea of who’s doing what, if on a somewhat delayed basis. For example, some asset mixes are reported at the end of each quarter, or each month, in one degree of detail or another. So you can at least get an idea of what a competitor’s mix was at the end of say, last quarter, even if it’s not there now, and wasn’t for the previous quarter either, except for the last day when the report was run off.

Some like to play Mr. Dressup

Literally, some portfolio managers do ‘window dress’ their portfolios at the end of each quarter, specifically to disguise what it was they’ve been up to for the previous 89 days or so.

Mutual funds too report publicly. There you can usually find out not only a particular fund’s asset mix, but also the top ten, or more, holdings in their portfolio. However, that’s not necessarily useful for a retail investor seeking to determine an asset mix for themselves, based on what a mutual fund is doing, simply because of the sheer number of funds out there, and the breadth of their mandates.

And that’s just after the fact. Almost never do you find out what an accomplished major money manager’s asset mix is right now, let alone what they intend to change it to next.

Emphasize cash and government bonds?

The issue of asset allocation has become more urgent given the economic developments of recent months. For example, The Globe and Mail recently profiled a portfolio manager and investment adviser at Hollister-Wealth, a division of Industrial Alliance Securities Inc.

Jason Del Vicario oversees approximately $118 million in assets and manages a balanced fund that’s allowed to invest up to 70 per cent of its assets in equities. But Mr. Del Vicario is convinced that a recession may hit us as early as this year. He’s consequently moved 20 per cent of the fund’s portfolio into cash, 40 per cent into government bonds and the remaining 40 per cent into equities. About 12 per cent of the equity component is invested in precious metals, as gold is considered a fairly secure place to park your money in times of upheaval.

But before you go changing your asset mix to reflect Mr. Del Vicario’s pessimistic view, bear in mind that the current outlook doesn’t seem as dire as it did, say, a month ago. Some encouraging developments include progress on US-China trade negotiations, strong job numbers in the US, and signs that the manufacturing sectors in China, the US and elsewhere have held up well. It may be that we’re experiencing a period of economic softness rather than tipping into a recession.

Or remain heavy in equities?

Then too, not all managers have tilted their portfolios to cash and fixed income. As of the middle of March, PH&N Balanced Fund, the only balanced fund we recommend in this publication, had about four per cent of its assets in cash, 34 per cent in fixed income and 62 per cent in equities. We doubt the fund’s asset allocation has changed much since then. After all, according to its prospectus, it does not typically make large shifts in its asset mix. That probably reflects its long-term orientation.

What’s more, given the fund’s strong track record, which has earned it a five-star rating from Morningstar, we think its most recent published asset allocation is not unreasonable.

Why not use that as a starting point, and see where your own asset mix is right now?

This is an edited version of an article that was originally published for subscribers in the April 19, 2019, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
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