This just in: CEO Chris Shuba in Financial Planning

On this episode of Math Men on the Markets, Joe Mallen, CIO, and Nyle Bayer, CMO, discuss Joe’s Helios Wins Above Replacement (HWAR) whitepaper and its potential impact on advisors. In particular, Joe and Nyle explore the roles of advisors and how advisors can better create portfolios and add value for clients. They also address problems in the investment industry, including the tendency of advisors to actively manage funds.

Helios Quantitative Research · Helios Wins Above Replacement

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  Shownotes: 2:44 – 2:49 “We think an advisor needs to have three things when it comes to selecting their portfolios for their clients.” (Joe Mallen) 3:48 – 3:59 “…Actively-managed funds don’t outperform their benchmark, so why are all advisors playing in that sandbox of trying to pick the best funds when the data is just against you?” (Joe Mallen) 6:15 – 6:33 “If that’s your process, just going in and picking funds that have five stars, you are ultimately selecting funds that have good performance in isolation, and we found that to be a problem, because if you just went and picked the best performing fund in each asset class, you are loading up on a bunch of unintended risk in your portfolio” (Joe Mallen) 10:35 – 11:01 “…Owning a benchmark fund within an asset class is not a bad position. It’s called the neutral position… You don’t need to swing for the fences with every single position.” (Joe Mallen) 12:11 – 12:25 “So that WAR (Wins Above Replacement) rating, which has become very popular in baseball is quickly looking at how much better is this player against the average player in this position? And that’s exactly what you wanted to look for with funds.” (Nyle Bayer) 13:09 – 13:28 “We said, can we distill investment analysis into one number? Or zero, like Wins Above Replacement, is the average fund, the average position and in our case like we talked about, the average position should be your default position of just owning the benchmark, owning the low-cost ETF in that asset class.” (Joe Mallen) 15:52 – 16:18 “You want to create a portfolio that has the highest probability of meeting that expectation, and that’s where that success comes in. We want the highest amount of probability for our clients, to be able to stand there and say, this is the portfolio based off this process that I think has the highest chance of achieving that goal…it’s not going to hit home runs and be too far above it, and it’s not going to be too far below it.” (Nyle Bayer) 16:32 – 16:54 “This is not a power ranking system to identify the best fund, but almost the opposite, where this is a system to identify funds that shouldn’t be in your portfolio, that are going to take you away from that goal…the best portfolio is the one that meets the expectations for the client…” (Joe Mallen) 18:48 “We want a fund that has an ability to hit singles over and over again, versus one that’s going to hit a home run every tenth at-bat and I’d rather have the fund that outperforms year after year after year–I think that’s very hard to do..” (Joe Mallen)

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If you would like to receive the Helios Market Report delivered straight to your inbox every Sunday night, enter your info on the sidebar to the right. Follow Joe on twitter @joseph_mallen Follow Nyle on twitter @nylebayer