Make the Grade With Portfolio Returns: A 3-Step Guide for Advisors to Rise to the Top of Class
Written by: Mark V. Petersen
It’s that time of year again. Kids of all ages—from kindergarten to college—are heading off to yet another first day of school. With new backpacks and fresh notebooks, most of them are all smiles…at least until the teacher assigns homework. And dreaded though it may be, every parent and teacher knows that homework and good study habits are the keys to success – it’s the preparation for coming tests. The student who knows how to carefully hone in on the details that matter most will rise to the top of the class.
The investment world has its own term exams and every advisor, broker-dealer, and due diligence officer knows the pressure of mid terms. Quarterly reports are your own “report card,” and today’s continued low-interest rate environment makes delivering coveted returns quite the challenge. Advisors must create client confidence to set themselves apart from “the competition down the street” and the roboadvisor of the day (no advisor can afford to be a commodity!). Broker-dealers need to provide their advisors with strong options that support that differentiation. And due diligence officers need to identify innovative, suitable alternatives to make it all happen.
So here’s the question of the day: Are you making the grade with your portfolio returns?
If you are, fantastic. It means you’ve found a way to balance risk, probably by embedding a good chunk of alternative investments into your portfolio to lower correlations and effectively hedge the general market trends and reduce risk, regardless of general market volatility. More importantly, it means you’ve found a way to achieve some very real differentiation.
But if your grades could use a boost, here’s a simple, 3-step guide to help you hone in on the most important details, choose the most suitable alternatives for your portfolio and, ultimately, rise to the top of the class:
1. Know what sophisticated investment platforms are looking at today.
One thing is for certain: they’re not following the trends. Instead, they’re looking at stable, non-correlated investments that offer unique growth opportunities and hedge market movement. In most cases, these forward-thinkers are seeking alternative funds that offer unique characteristics that have the potential to lower portfolio correlations and provide additional Alpha.
2. Look for investments that are capital constrained.
Years ago, I was on an American Airlines flight when the flight attendants handed everyone a brochure on mutual funds. I knew then and there it was time to get out of mutual funds! It was a sure sign that too much money was flowing into an investment strategy. While everyone’s ultimate goal is to “buy low and sell high,” even experienced investors fail to abide by the rules to make that happen. The surest route to failure: follow the trends. Instead, seek asset classes that are capital constrained simply because they haven’t yet become the next-best-thing. Opportunities for growth will be in your hand when the trend emerges—and the values increase—down the road.
3. Move beyond your checklist to consider non-traditional characteristics.
Strong financials, established processes and infrastructure, positive momentum, a consistent track record, and a great management team are important, but there are so many other factors that drive value, especially when looking at an investment opportunity. How a fund manager treats his or her employees can be a strong indicator of how they treat investors. What’s the company culture? Is there continuity as a team, or has the firm seen habitual turnover? Do the firm principals have “skin in the game”? Do they have enough confidence in the fund to invest their own assets? What is the investment’s Sharpe Ratio—not just its returns compared to the S&P 500? How have they weathered the past cycles? Use your own due diligence to pick the investments that can help you break away from the norm.
Like any homework, having some fun with it can make it seem less like work and more like play. Consider asset classes you’ve never thought about before. Aircraft leasing, royalty financing, and peer-to-peer lending have been making headlines lately, so they’re interesting to look at, but you may already be too late to the game when it comes to capital constraints. The most important thing you can do is to do your homework. Find the alternatives that are most suitable for your own portfolio and add them to the mix. It’s the best—and perhaps the only—way to truly rise to the head of the class.
Mark Petersen has over 25 years of experience leading distribution and sales efforts in the financial services industry. His background includes managing retail and institutional securities sales as well as national accounts, and he has forged strong relationships with broker/dealers and financial advisors throughout his career. Currently Executive Vice President at GWG Holdings, Inc., Mr. Petersen is also a registered representative of Emerson Equity. His previous roles include co-president of Behringer Securities LP and executive sales and marketing positions with CNL Fund Management, Franklin Square Capital Partners, and Madison Harbor Capital. He holds an MBA in finance from Baylor University and a B.S. in business administration from the University of Texas at Arlington.
China's Push Toward Excellence Delivers a Global Robotics Investment Opportunity
Written by: Jeremie Capron
China is on a mission to change its reputation from a manufacturer of cheap, mass-produced goods to a world leader in high quality manufacturing. If that surprises you, you’re not the only one.
For decades, China has been synonymous with the word cheap. But times are changing, and much of that change is reliant on the adoption of robotics, automation, and artificial intelligence, or RAAI (pronounced “ray”). For investors, this shift is driving a major opportunity to capture growth and returns rooted in China’s rapidly increasing demand for RAAI technologies.
You may have heard of ‘Made in China 2025,’ the strategy announced in 2015 by the central government aimed at remaking its industrial sector into a global leader in high-technology products and advanced manufacturing techniques. Unlike some public relations announcements, this one is much more than just a marketing tagline. Heavily subsidized by the Chinese government, the program is focused on generating major investments in automated manufacturing processes, also referred to as Industry 4.0 technologies, in an effort to drive a massive transformation across every sector of manufacturing. The program aims to overhaul the infrastructure of China’s manufacturing industry by not only driving down costs, but also—and perhaps most importantly—by improving the quality of everything it manufactures, from textiles to automobiles to electronic components.
Already, China has become what is arguably the most exciting robotics market in the world. The numbers speak for themselves. In 2016 alone, more than 87,000 robots were sold in the country, representing a year-over-year increase of 27%, according to the International Federation of Robotics. Last month’s World Robot Conference 2017 in Beijing brought together nearly 300 artificial intelligence (AI) specialists and representatives of over 150 robotics enterprises, making it one of the world’s largest robotics-focused conference in the world to date. That’s quite a transition for a country that wasn’t even on the map in the area of robotics only a decade ago.
As impressive as that may be, what’s even more exciting for anyone with an eye on the robotics industry is the fact that this growth represents only a tiny fraction of the potential for robotics penetration across China’s manufacturing facilities—and for investors in the companies that are delivering or are poised to deliver on the promise of RAAI-driven manufacturing advancements.
Despite its commitment to leverage the power of robotics, automation and AI to meet its aggressive ‘Made in China 2025’ goals, at the moment China has only 1 robot in place for every 250 manufacturing workers. Compare that to countries like Germany and Japan, where manufacturers utilize an average of one robot for every 30 human workers. Even if China were simply trying to catch up to other countries’ use of robotics, those numbers would signal immense near-term growth. But China is on a mission to do much more than achieve the status quo. The result? According to a recent report by the International Federation of Robotics (IFR), in 2019 as much as 40% of the worldwide market volume of industrial robots could be sold in China alone.
To understand how the country can support such grand growth, just take a look at where and why robotics is being applied today. While the automotive sector has historically been the largest buyer of robots, China’s strategy reaches far and wide to include a wide variety of future-oriented manufacturing processes and industries.
Electronics is a key example. In fact, the electrical and electronics industry surpassed the automotive industry as the top buyer of robotics in 2016, with sales up 75% to almost 30,000 units. Assemblers such as Foxconn rely on thousands of workers to assemble today’s new iPhones. Until recently, the assembly of these highly delicate components required a level of human dexterity that robots simply could not match, as well as human vision to help ensure accuracy and quality. But recent advancements in robotics are changing all that. Industrial robots already have the ability to handle many of the miniature components in today’s smart phones. Very soon, these robots are expected to have the skills to bolster the human workforce, significantly increasing manufacturing capacity. Newer, more dexterous industrial robots are expected to significantly reduce human error during the assembly process of even the most fragile components, including the recently announced OLED (organic light-emitting diode) screens that Samsung and Apple introduced on their latest mobile devices including the iPhone X. Advancements in computer vision are transforming how critical quality checks are performed on these and many other electronic devices. All of these innovations are coming together at just the right time for a country that is striving to create the world’s most advanced manufacturing climate.
Clearly, China’s trajectory in the area of RAAI is in hyper drive. For investors who are seeking a tool to leverage this opportunity in an intelligent and perhaps unexpected way, the ROBO Global Robotics & Automation Index may help. The ROBO Index already offers a vast exposure to China’s potential growth due to the depth and breadth of the robotics and automation supply chain. As China continues to improve its manufacturing processes to meet its 2025 initiative, every supplier across China’s far-reaching supply chains will benefit. Wherever they are located, suppliers of RAAI-related components—reduction gears, sensors, linear motion systems, controllers, and so much more—are bracing for spikes in demand as China pushes to turn its dream into a reality.
Today, around 13% of the revenues generated by the ROBO Global Index members are driven by China’s investments in robotics and automation. Tomorrow? It’s hard to say. But one thing is for certain: China’s commitment to improving the quality and cost-efficiency of its manufacturing facilities is showing no signs of slowing down—and its reliance on robotics, automation, and artificial intelligence is vital to its success.
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