Why TPP might be the only investment capable of improving your portfolio performance.
Finding a way to yield a return in a ranging market.
October 12, 2022
Wondering why The Portfolio Platform is changing the investment landscape?
We are not wealth managers and we don’t build portfolios that look or work like theirs. In fact, in an era of slower growth where stocks might struggle, we may be the only path to decent yield.
Wealth managers build portfolios that are naturally defensive; their job is to stay under the radar. They diversify a portfolio by having bonds, cash, gold and all sorts which essentially means that if the markets are down, they try to be down a bit less, if the markets are up, they will be up by a bit less.
The usual story is that when stocks go up, bonds go down and vice versa. By holding a mix they are reducing exposure and volatility. They are also reducing the likely returns but possibly making them more consistent. That is what they do and there is a place for it.
No wealth manager hopes to beat the equity benchmark. They place money in equity funds, in bond funds and in alternative investment funds in a hope to provide a yield every year. This year, they have failed. Essentially, they outsource your money to a variety of different investments.
That’s not what we do.
The point of the 60/40 model is that you hold 60% equities and 40% others (predominantly bonds).
The 40% should do well if the 60% does badly. This year that famously hasn’t worked, but to be honest, it should really come back into play as a ‘safe’ model soon now that interest rates are back.
Right now, if you want 4% guaranteed return every year, buy some 10 year treasuries and don’t pay any management fee at all. Growth in the near future may be slow, so your investment manager won’t do much better than that because they can’t actively trade your account.
This is what we do.
The portfolio you hold with your investment manager will be down this year. For the sake of argument let’s say it’s down 10%. Some will be down more, and some less.
If you’re down less, then you probably have a good portion of your portfolio in cash. That’s great, as long as they put that cash back to work at some point. If they don’t, then the best thing you can do is take that cash out and put it in the money market yourself because you don’t need to pay a wealth manager 2% to hold your cash for you.
So, you’re down 10%. The best you can hope for when stocks go back to where they were is that you make that 10% back. This could and probably will take years. US stocks are down an average of around 23%. The Nasdaq even more at negative 33%. Therefore, your investment management portfolio could take several years to recover from this retracement.
The UK has fared a bit better, but we are still looking at about 12 to 18 months to get back to where, we were so a lot depends on where and how your equities are invested.
Why we should do better than our benchmarks over the next few years.
As we have said, it will take stocks years to go back to where they were for you to make back what you’ve lost on your wealth management portfolio. This is how it works. They buy, they hold, and if it goes down, eventually it will come back; but this time, that could be years.
This is the best way to invest if you’re stock picking and it makes perfect sense if that is all you have available to you. Investment managers can only buy and hold stocks so there are no other options.
BUT, at TPP it works very differently. We use leverage to buy into the markets to make extra returns and picking the bottom is a fairy-tale. The markets have had their worst year in 50 years, but bad times don’t last.
The advantage we have is that we don’t need the markets to move back up 20% in order to make 20%. Our traders will buy in, sell out, buy in and sell out again. This is easier in a gradually upwards moving market as we’re likely to get next year.
Currently most of our traders are ‘buy and hold’ equities overall, but many are making short term trades within the portfolios for small profits as you can see from the table below.
If the markets gyrate next year and make returns of 5-10%, there is no reason why our traders won’t make 20-30%. We aren’t reliant on just holding the same equity position forever.
We thought we had seen the start of a rally at the beginning of last week as portfolios jumped, but unfortunately the Americans had other ideas and a new wave of selling began.
Another rally will come and a short term move of 5% or so would increase our portfolios on average by around 10-15%. Our traders would then sell out wait for another drop and buy back.
This is not something that your wealth manager can, nor will do.
What we offer should do well over the next few years in a range bound market that isn’t producing great growth or returns, which is what we’re expecting. Your portfolio elsewhere will be stuck in single digit returns for the next few years.
We are optimistic the recent asset reallocation and market drop we’ve seen this year, is creating the perfect environment for what only we can offer to retail investors.
If you would like more information on how to make money in a flatlining market, please do click here and one of our directors will be in touch.
If you'd like to schedule a call, you can do so by clicking here.
“TPP might just be about to revolutionise investment for the retail market.”
- London Stock Exchange 2020