David Ott is the Chief Investment Officer and Partner of Acropolis Investment Management, and is a long term principal and partner at this respected money manager.
Diversification has fueled the returns for the asset manager’s customers: “…there’s historically been a premium for investing in small caps. And so we want to stay diversified both to reduce risk but also to try and get that excess return. Now, it’s been a while since we have seen it. But I believe that it still exists.”
Avoiding developing market risk has been key for portfolio out performance recently: “If you look at the world, it’s about half U.S. and about half outside the U.S. And then if you look at the non-U.S. markets, it’s about 80% developed and 20% emerging. We have an active home bias, in that we’re 75% U.S. and 25% overseas across equities instead of 50/50. Then within overseas equities, we’re 80% developed and 20% emerging. And that takes it down to 5% or less for most portfolios in emerging. So we don’t face that particular risk.”
The money manager also avoids excess risk by focusing the portfolio on better traded industry segments: “So the first thing we do is exclude the four smallest sectors. Until recently, that meant utilities, basic materials and telecom. Financials recently split off REITs into an independent sector, so that is now pretty small. We avoid those four when we do our individual stock implementation. They’re just too small, and they don’t have very many names within them.”
Read the entire interview with this Chief Investment Officer and get all the investing strategy recommendations at the Wall Street Transcript.
Diversification & Limited Risk Benefit Investment Porfolios
January 31, 2012