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Portfolio Construction

New Challenges

Investors and their wealth portfolio managers need to rethink their overall approach to portfolio construction. Thinking in terms of risk diversification is not a luxury anymore but a must for anyone who wants to protect their asset from higher volatility in both bonds and equity asset classes. Today, few portfolio managers offer client exposure to as many different and non-correlated types of risk.

The challenge is in the construction of a portfolio that has many different asset classes, which include as many different types of risks as possible. To achieve this diversification, investors must include real assets, real estate, commodities, and strategies like long/short equity or equity market neutral investments or using option when it makes sense. Those asset classes or strategies are just a few examples of the risk diversifiers we can use. Every investor has a unique set of needs and maximizing a blend of risk and sources of potential returns is what we can tackle at Montag Private Wealth.

We Do Not Believe in a One-Size-Fits-All Process

We do not believe in the one-size-fits-all asset allocation process that many firms offer because it rarely fits the various liabilities most investors face, no matter if it is with an endowment fund, a small pension or a high net-worth individual.

We concentrate on risk determination and an individualized asset allocation process to capture the expected risk and corresponding return level.

Alternative Investments

Alternative investments are all other investments in an asset class or strategy that do not have a long position in stock or bond. This can include: real estate (other than a house), real assets, private equity, commodities, options, currencies, futures, collectibles, convertible bonds, emerging market debt, equity market-neutral, global macro strategy, etc. Alternative investments can also mean a trading strategy other than long position using ordinary stocks and bonds that may involve shorting and hedging.

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Alternative Investments

Alternative investments are all other investments in an asset class or strategy that do not have a long position in stock or bond. This can include: real estate (other than a house), real assets, private equity, commodities, options, currencies, futures, collectibles, convertible bonds, emerging market debt, equity market-neutral, global macro strategy, etc. Alternative investments can also mean a trading strategy other than long position using ordinary stocks and bonds that may involve shorting and hedging.

Many investors choose to ignore alternative investments but this is not necessarily the best strategy. It may be because of a general lack of knowledge and a misunderstanding of basic concepts like diversification and correlation. At Montag Private Wealth, we deconstruct the typical portfolio, 60/40, to better show how traditional portfolios are unable to preserve capital during extreme volatility. This failure to protect the capital is mainly due to a lack of diversification and high correlation during extreme and sometime not so extreme volatility within equities of all sector, market cap and geography origination.

We feel that a better portfolio construction begins with proper asset classes, constituents or strategies diversifier. Alternative investment can contribute to better diversification as well as reducing correlation within asset classes. But those investments or strategies are still not well known by investors, who are too often seeing high performance showed by hedge funds using alternative investments or strategies instead of focusing on how these portfolio performances have been achieved and the risk involved. Investors should see alternative investments as a mean to better diversify and achieve consistent return despite market volatility. High return is not the only reason to justify the higher fees associated with alternative investments. Risk mitigation is also, if not more, important than high return to justify paying more for an alternative investment solution and getting a better chance to protect capital.