Greg Rutherford, Chief Executive, Cavalier Investments
Greg Rutherford said his favorite investment decision dates back to when he was a financial advisor 18 years ago at his old firm, Omaha-based Tagge Rutherford Financial.
He made the decision to start using a Virtus sector rotation strategy. He said this was great because it was simple, went risk-on when markets were good, but would move toward defensive sectors when the market weakened.
‘Back in the day, I grew up learning to stay invested and that most markets are fine. Over a long period of time that strategy works, but when you have these harsh market downturns, there’s a lot of fear and clients are generally hiring you for something more than telling them to be patient and ride it out.’
The sector rotation strategy was made up of nine sectors that could be switched on or off. If markets began to weaken, it could switch off some of the more aggressive sectors.
Today, he still cherishes this decision as is evident from his firm’s own strategy, the Cavalier Tactical Rotation fund, launched in 2012 and subadvised by Beaumont Capital Management.
Paul Courtney, Director Of Research, Springtide Partners
Paul Courtney’s favorite investment decision came a few years ago, when he added a long/short equity strategy that was out of favor due to underperformance, having trailed the S&P 500 for three years.
The fund, Boston Partners Long/Short Equity, was managed by Robert Jones.
Courtney said Jones had a spectacular long-term track record and a small asset base that gave him a clear edge. Additionally, he noted Jones was one of the most incisive portfolio manager that he had ever met.
The problem with the strategy was its out-of-favor value approach and its shorts, which were concentrated in biotech, as well as longs, weren’t keeping pace with the market. The underperformance had led to redemptions that opened up capacity.
The fund roared back into favour, bolstering its strong long-term credentials. Over 10 years, it has delivered 181.9%, more than four times the average 43.1% for funds in the Long/Short Equity sector.
‘We view short-term performance as a contrarian indicator, so this fits our investment criteria perfectly, but it still took every shred of political capital to get the recommendation through,’ Courtney said.
Matthew Forester, Chief Investment Officer, Lockwood Advisors
Matthew Forester said his favorite decision was when he decided to go against the grain and add longer duration fixed income strategies at a time when everybody was allocating into shorter duration debt in order to mitigate interest rate risks in anticipation of a rise.
This decision arose from a talk with a demographics expert in 2010, who said interest rates in the developed world would remain lower for longer than people thought.
The argument was that young families would drive the economy but could not afford to borrow at high interest rates, meaning large increases were unlikely.
‘It was one of those insights in the financial market where you go, “aha,” I get it. As households are formed, young families need to go into the life cycle of debt,’ he said.
He has since been skeptical of strategists telling him rising rate environments are around the corner.
‘I think there are caps on how far interest rates are going to go when the demographics are so heavily against you. I think it’s had a bias for me, not being afraid of the duration call, and it’s been very helpful.’
Aaron Hanson, Senior Analyst, RBC Wealth Management
In 2010, Aaron Hanson decided to add an international large-cap equity strategy from a group that was based in San Francisco.
When he first added that strategy it was much smaller than it is today, with assets below $10 billion, despite the fund boasting a good track - record, hovering around the top quartile .
‘I did some basic screens and narrowed the universe a little , but then it was up to knowing the universe and doing more fundamental work as far as manager interviews. They are always very engaging when I speak with them, so I think from that perspective it’s been very rewarding,’ he said.
He also highlighted the managers' personalities and passion for investing, noting that they had been a good firm to work with in providing access.
‘Since we’ve owned the strategy, it’s been top decile across the board. The performance has been pretty incredible and over that time period, its performance has more than doubled the benchmark.’
Tim Clift, Chief Investment Strategist, Envestnet
The decision to start embracing both active and passive strategies early on and implement a blend of both into client portfolios is Tim Clift’s favorite.
Back in 2008, when Clift was at Fund Quest before it was acquired by Envestnet, he and co-worker Jane Lee wrote a few follow-up versions of an initial whitepaper outlining how the blend could work.
‘As we looked at it from an academic standpoint, we thought, this actually makes sense to implement in portfolios. We should build this,’ Clift said.
Clift and Lee, who had become the director of research for the firm at this point, had started a fund family called the active/passive funds. According to Clift, it was one of the first versions of an active/passive portfolio.
‘When we first started, it was split between active and passive and we learned over the years that there are certain market environments where active would be more favorable and vice versa. We started overweighting and underweighting how much we would use in active and passive as we got more sophisticated in the process.’