Is your approach to mutual fund portfolio construction out of date? BTS believes that our Strategic Asset Allocation Program modernizes more limited, and static, traditional approaches.

In 1998, BTS Asset Management created the Strategic Asset Allocation (SAA) program, a more dynamic approach to portfolio diversification and risk management. BTS’ take on modern portfolio theory has allowed our clients to reduce the risk of traditional portfolios. A multi-level approach utilizes the top tools in portfolio construction, making BTS an industry innovator in portfolio diversification.

The inspiration for SAA comes from the work done in the 1950s by Harry Markowitz. Markowitz received the 1990 Nobel Prize in Economics for his work on Mean Variance Optimization (MVO) and financial economics. MVO takes each asset category’s expected returns, standard deviations and correlations, and uses an optimizer to build the “ideal” portfolio. Mean-variance optimization is an accurate, solution to portfolio selection, only if the past is an accurate picture of the future. MVO assumes that markets are efficient and that there is no benefit to tactical asset allocation.

BTS’ 30 years of success in risk management, however, has shown that markets are, in fact, inefficient. A tactical approach used during the portfolio selection and allocation process can improve performance and reduce volatility beyond what can be expected with MVO alone. The reasoning behind this is that if we take any two different 5 or 10 year periods of a particular asset category, we will not find the same level of return or risk. Therefore, BTS believes that MVO should serve as only a first step in SAA portfolio construction, not the last. This differentiates BTS from so many other firms utilizing MVO today.

What many advisors also find exciting about BTS SAA is that it allows you, the advisor, an opportunity to spend less time on portfolio decisions and more time on building your business. BTS, a third party money manager since 1979 saves you precious time: the analysis, trades, and fee collection are all taken care of for you. BTS charges a maximum of 60 bps per year, depending on asset size, and allows the advisor to charge 0-1.50% annually. A recent study completed by CEG Worldwide looked at planners who worked as asset gatherers compared to those who worked as asset managers. The study found that of the 1,028 advisors who were polled, 50% of advisors that worked with third party money managers (TPMM) made between $500,000 and $749,999. There were no advisors earning less than $100,000. Advisors who did not work with TPMM were the lowest earners: 44.4% of these advisors earned less than $100,000, and none made more than $500,000. Along these same lines, Rydex Advisor Benchmarking’s 2005 study revealed that advisors who spend more than 60% of their time with clients made more than 8 times more per client than those who spent less than 30% of their time with clients.

Our SAA portfolio construction begins with developing an efficient frontier using MVO through the use of Ibbotson Associates’ industry-leading software. We then use technical and economic analysis to fine tune the portfolio with the goal of optimal performance over the next 90 days.

Economic forecasting comes from Lombard Street Investment Advisory Services, a division of one of the most admired investment research firms in the world since 1860, providers of independent credit ratings, indices, risk evaluation, investment research, data and valuations. Ibbotson software assists us in studying where the markets have been, while BTS technical analysis and Lombard Street’s economic forecasting show us where we currently are, and importantly, help us to gauge where we may be going in the near future.

Once our asset categories and percentage allocations have been determined, we begin the fund selection process. BTS takes a top-down fundamental approach to our fund selection, employing rigorous qualitative and quantitative analysis.

With Alpha SAA on the Trust Company of America platform, clients will own one of the most dynamic portfolios available in the market today. BTS also offers SAA at select variable annuities and mutual funds such as American Funds. Clients deserve the very best in portfolio construction, and BTS believes that its exhaustive approach gives you and your clients the piece of mind most welcome among today’s retirement-conscious investors.