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How to Position Client Portfolios for Volatility

By Crucial Clips     May 8, 2019
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: FAIQ, May. 1, 2019 

GARRETT KEYES, REPORTER, FINANCIAL ADVISOR IQ: Hello, my name is Garrett Keyes. I'm a reporter for Financial Advisor IQ. And I'm here today with Greg Hahn, the president and CIO of Winthrop Capital Management.

Greg, how do advisors need to position their clients' portfolios to deal with volatility?

GREG HAHN, PRESIDENT CIO, WINTHROP CAPITAL MANAGEMENT: So what we're seeing is a strong recovery in domestic stocks since the fourth quarter of last year. We're up over 11 and 1/2% I think on the S&P. We're back to full valuation, which we saw in the third quarter of last year. So we're slightly elevated on equity valuation, but there's opportunity in fixed income. We have not seen the bond market, particularly credit, tighten to the levels that we saw in December. So we still think there's value there.

GARRETT KEYES: For an advisor that's positioning their client's portfolio, is it going to be more difficult in the near term with increased shakes in the market?

GREG HAHN: So expected returns on publicly traded financial assets, depending on asset allocation, we think are between 4 and 8% depending on the risk tolerance. So to start with, to manage expectations in terms of what we see for expected returns, it's not like we saw in the 1990s. We're single digits.

GARRETT KEYES: Does volatility mean that there's opportunity? Or does this mean that advisors should be concerned and hedge?

GREG HAHN: Volatility is an opportunity. As a portfolio manager, when we see volatility we want to run into it. We don't want to run from it. We believe that you need to be compensated for the risk you're taking. So if volatility is actually increasing it's a reflection of an adjustment in the price of risk. So we want to allocate the portfolio accordingly and take the opportunity to add risk into the portfolio if we're compensated for it.

GARRETT KEYES: But does this mean that every advisor should try and take advantage of volatility with their clients?

GREG HAHN: Coming from a portfolio manager standpoint, that's how we produce performance. Some advisors are reluctant to add because the fear of what the client might think. We respect that, we understand that, because you don't want to upset the client. But from a performance standpoint in producing total return, that's how we approach it. So we want to be diversified. We alter that diversification as volatility shifts.

GARRETT KEYES: Thanks for speaking with me today, Greg.

GREG HAHN: Yep, thank you, Garrett.