Michael O. AdairManaging Director, Senior Investment Consultant | 2018

Designing a Personalized Portfolio: Three Principles to Unlocking Client Alpha

Any sound investment management plan includes a robust risk management strategy. At City National Rochdale, we customize these strategies to each client—a necessary step since individuals have unique levels of risk tolerance.

Principle 3: Customized Risk Management

Last, but not least, any sound investment management plan includes a robust risk management strategy. At City National Rochdale, we customize these strategies to each client—a necessary step since individuals have unique levels of risk tolerance. People tend to dislike losses more than they like gains—a concept known as loss aversion. At the same time, some risk is necessary to achieve financial goals. It’s our job to help clients develop and define a risk budget and then adjust the investment strategy to match.

Perhaps the most salient story about the markets recently has been the return of volatility. The U.S. is currently nine years into the bull market, and the present economic expansion is on its way to becoming the longest in history. Eight years of federal intervention has suppressed market volatility and removed risk management as a source of alpha.

However, we believe the extended period where low volatility and beta have dominated will change over the next few years. When the market declines, active risk managers have historically outperformed beta managers since active managers have the ability to reduce risky asset exposure and take advantage of opportunities.

At City National Rochdale, we provide active risk management techniques such as strategic asset allocation, rebalancing, and downside loss controls, implemented through three levels of portfolio risk management:

Level I: Strategic Asset Allocation

Together, we custom-build a portfolio for each client’s investment goals using the appropriate asset allocation, seeking an efficient risk/return trade-off.

Most “do-it-yourself” investors stop here.

Level II: Dynamic Asset Allocation

Research drives strategic and tactical investment decisions. Our research team proactively monitors changing risk factors over time, including risks associated with individual sectors or securities.

Most investment firms stop here.

Level III: Personalized Downside Risk Management

Managing volatility is especially important during non-normal market periods. A proprietary process, it acts as a circuit breaker for limiting losses in the portfolio while adhering to the client’s overall risk budget.

This is the City National Rochdale difference. We go a step further.

RAISE CASH TO MANAGE AND MITIGATE RISK

During times of adverse market conditions, our Asset Allocation Committee may recommend a move to cash based on the recession outlook. Individual portfolio managers then tailor the amount to move based on guidance from the committee and adjust based on each client’s personal strategy and risk tolerance. The below graphs show how we’ve historically converted assets to cash as part of Level III risk management during bear markets.

What makes our risk management strategy so powerful is that it’s customized to each client, providing a truly personalized investment management experience. No two investors are exactly alike, and so no two risk strategies at City National Rochdale are exactly alike.


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Any sound investment management plan includes a robust risk management strategy. At City National Rochdale, we customize these strategies to each client—a necessary step since individuals have unique levels of risk tolerance.

Sources and Disclosures

1Average tax alpha generated between 2008 and 2017 from five randomly selected real client accounts (from five separate senior portfolio managers) used in a City National Rochdale internal study. For more information, see our white paper, Tax Alpha: Enhancing Returns Through Active Tax Management.

2Weinberg, Ari I (2012, October 16). A magical tax-loss harvesting machine? Forbes. Retrieved from https://www.forbes.com/sites/ariweinberg/2012/10/16/a-magical-tax-loss-harvesting-machine/#6f09b0f47a5e

Important Disclosures City National Bank provides investment management services through its wholly owned subsidiary City National Rochdale, LLC, a registered investment advisor.

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities mentioned herein.

Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources, and, although believed to be reliable, it has not been independently verified, and its accuracy or completeness cannot be guaranteed.

Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change.

As with any investment strategy, there is no guarantee that investment objectives will be met, and investors may lose money. Returns include the reinvestment of interest and dividends. Investing involves risk, including the loss of principal. Diversification may not protect against market loss or risk.

Past performance is no guarantee of future performance.

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