As Silicon Valley has waded into financial services recently, a wave of venture-backed “Robo-Advisor” firms has started to attract client assets.  Marketed as simple, easy-to-use and inexpensive, the robo-advisor model has two critical shortcomings, which will wreak havoc on their clients’ portfolios going forward.

There are three sources from which skill- (or luck-) based returns can be captured: security selection, tactical allocation, and strategic allocation.  While upwards of 90% of the industry is focused on security selection, the other approaches are waiting to be exploited.

Alpha generation is clearly negatively correlated with assets under management.

Products have recently been created which generate income but hedge off interest rate exposure with short positions in treasuries or similarly high quality securities.  This is a disaster waiting to happen. 

If positive alpha, non-correlated return streams are good things in multi-strategy hedge funds, shouldn’t those benefits translate to the new liquid-alts models in mutual fund formats?  Sadly, they do not.

The proliferation of ETFs has certainly increased access and liquidity in many markets, including stocks, bonds and precious metals.  This proliferation has also created a liquidity trap.

Smart Beta strategies are on the rise, and despite the name and the naysayers, investors would be well served to consider them.

The big problem facing retail portfolios is that they are bogged down by capital-intensive, lower-risk funds that drain additional capacity which could be allocated to investments that diversify at an asset allocation level. 

Asset managers who exceed the 30-stock count, the point at which the vast majority of diversification’s benefit has been implemented, begin to trend more and more toward being closet indexers.  There is nothing worse than what is tantamount to a passive strategy charging active management fees.  Perhaps surprisingly, investors are to blame for this.

All investors benefit from increased alpha, and reallocating some of the focus from investment selection alpha to opportunistic alpha could have a significant, positive impact on portfolios. 

Many investors think being Robust to volatility is the best they can do, and position accordingly.  Introducing them to the concept of Antifragility could change their minds, and improve their outcomes.

Intra-portfolio dollar cost averaging is the only way a fully invested portfolio can earn more than the sum of its parts.

Common industry knowledge tells us that volatility is bad, something that needs to be justified by returns.  When you are implementing a DCA strategy, however, volatility is objectively a good thing – and the more the merrier.

"74% of active managers underperformed their index" is a very misleading statement...

The notion that hedge funds are just expensive ways to generate simple long volatility exposures is wrong, and here's why...

The false assumption that investment returns are normally distributed can lead to disappointing results -- considering upside and downside volatility independently can help...