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MULTI-ASSET INCOME

Objective

Seeks to provide access to both traditional (e.g. global Treasuries, dividend stocks, and corporate bonds) and non-traditional (e.g. high yield bonds, REITs, MLPs, bank loans, preferreds, and EM debt) income-based asset classes within a disciplined risk management framework that seeks to avoid significant drawdowns.

Why does managing risk matter?

Trade Offs

  • May not be tax efficient
  • May not closely track the strategy’s benchmark
  • Unlikely to protect against short-term volatility


Strategy Process

  • Employ a systematic trend following approach that can move the portfolio entirely to high quality, short-term fixed income in effort to avoid significant losses.
  • When invested, allocate across positive-trending asset classes based upon their relative expected risk-adjusted yield.
  • Review tactical models on a weekly basis.

Detailed process information available in the Document Center.



Research on Trend Following


Questions & Answers

The portfolio invests in exchange traded funds (ETFs) representing 16 global high income asset classes, including domestic and international dividend stocks, domestic and international sovereign debt, corporate bonds, high yield bonds, bank loans, domestic and international REITs, MLPs, convertible bonds, preferreds, equity buy write, local and USD-denominated EM debt, and mortgage REITs.  We utilize ETFs as the building blocks of its portfolios because they are a transparent, cost-effective, and highly liquid means of gaining and managing exposure to particular asset classes and market sectors.

Due to the active risk management process employed, as well as the varying nature of the yields offered by the investible universe, the portfolio does not have a mandate for a specific yield target.

The portfolio seeks to manage risk in three ways.  First, the portfolio embraces diversification, incorporating 16 global high income asset classes.  Second, a simple trend-following overlay is employed on each asset class to remove those asset classes we believe are exhibiting excessive downside risk characteristics.  Finally, the remaining asset classes are weighted based upon their risk-adjusted yield, favoring those positions that offer more yield per unit of volatility.  Positions are capped at 25% to reduce concentration risk.  If three or fewer asset classes pass our trend filter, a position in short-term U.S. Treasuries will be built.

The portfolio is evaluated on a weekly basis.  In stable market environments, we expect to make few, if any, portfolio changes; in higher risk environments we expect to trade the portfolio more frequently in effort to keep up with changing market dynamics.

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Investment Ideas

Diversify

By replacing a slice of both equity and fixed income exposures, the Multi-Asset Income portfolio can introduce a set of asset classes that can not only increase internal diversification of a portfolio, but also offer access to a unique return source.

Find Yield

Finding yield without taking on excessive risk in today’s low interest rate environment can be difficult.  Newfound’s Multi-Asset Income portfolio was designed to provide turnkey access to a set of higher income generating vehicles in a risk managed framework.

Pursue Return

While the asset classes utilized in this portfolio are most often evaluated for their yield potential, in an environment of high equity valuations, we believe these asset classes actually have the potential to increase the total return of a portfolio due to their structurally higher yields and fairer valuations.

Deploy Cash

Large cash positions can be dangerous, even in mildly inflationary environments, because they can have a negative real return.  The Newfound Multi-Asset Income portfolio can be utilized to invest the available capital in a set of asset classes that can create a significant real yield.

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