We welcome feedback from our readers. Each month we will publish a selected group of letters, along with our
responses. Send your questions, comments to
We will respond to all questions.
I really enjoyed the first copy of your newsletter. I visited your website and wondered if you had determined
whether your historic asset allocation information was correlated with future returns; i.e. does your data in
aggregate or in slices display any alpha.
We are looking into this question ourselves. The answer, for now, is that we don't have nearly enough data to be
able to provide an answer. We will be adding a feature to the service that will show historical asset allocation
(via stacked line graphs), and allow you to graph a major index. This way it will be easy to see if the asset
allocation is a leading or trailing indicator of market movements, or if there is no correlation. The data in
our service is really only usable from the beginning of 2Q07 forward. Before this year the universe was not big
enough, and we spent the beginning of this year cleaning up the data (classifying the unclassified securities).
Asset allocation is a very personal decision, and I make decisions based on individual client needs, typically based
on their age, risk tolerance, and cash flow needs. How can I use your data to help with individual client allocations?
Our goal is to provide statistically sound data that gauges overall market sentiment within the RIA community,
particularly those RIAs servicing high- and ultra-high net worth clients. Our goal is not to help you with individual
client asset allocation decisions. We recognize the personal nature of that decision, and the value that a financial
advisor brings to the table. But we also believe there is a lot of value in understanding market trends in asset
allocation, especially if it turns out (as explained in our response to the previous question) that our data is
predictive of market movements.
It was very interesting to read that your data shows that smaller and mid-size investors exhibit less risk aversion
than larger investors. What other trends do you see in the data, particularly between these demographic segments?
For example, it seems that smaller and mid-size investors favor broader market or index-tracking funds. Is this the
One of the major differences among the three account tiers is in their use of ETFs (Exchange Traded Funds).
ETFs make up approximately $1.1 billion of our fund universe (about 2% of our total universe). But there are
striking differences in their use in different account tiers. In the smallest accounts, ETFs make up approximately
3% of fund assets. In the mid-sized accounts, ETFs make up approximately 5% of fund assets, and in the largest
accounts ETFs make up approximately 17% of fund assets. You can see a list of the ETFs in our universe
. We only show ETFs as a group for the entire universe,
and not within the three account tiers, because so few ETFs are held in the small and mid-sized accounts.
However, when viewing the most popular funds within each tier, ETFs are included.
Several factors explain the fact that larger accounts hold disproportionately more ETFs. Larger accounts
(and by proxy larger investors) are more fee sensitive than smaller investors. RIAs in a fee-only environment
find the lower fees more cost effective, and this cost effectiveness is amplified for and more appreciated by
larger investors. Small and mid-size accounts may represent qualified plans, such as 401(k) and IRA accounts,
where the tax advantages offered by ETFs would be inconsequential, whereas larger investors are very sensitive
to the tax advantages offered by ETFs. Lastly, ETFs offer more transparency, which will have greater appeal to
The question about the use of index funds in different account sizes deserves more study, and we will look at this
in a future article.
When I look for foreign bond funds in the AP universe, no data is displayed and I get the message "No Funds in the
Advisor Perspectives Universe in this Category". What does this mean?
In order to display a fund in our list of Most Popular Mutual Funds, a couple of criteria must be met.
First, and most importantly, there must be a minimum amount of assets in the fund in our universe.
That minimum amount varies by account tier. You can see the minimum amounts
. Second, the fund must be held in more than one account.
These two criteria help insure the privacy and confidentiality of the investors and advisors from whom our data is
obtained. There are plenty of foreign bond funds in our universe, but they do not meet these criteria, in most
cases because the assets in the funds are too small.
Remember, if you have a question or comment, send it to .