Regardless, the advisor believes that asset managers should be prepared for a return to mean after the incentive-driven run comes to an end. Certain managers deployed by Sightline who, with an appropriate risk averse strategy, were hoping for a return of around 6% to 8%, rose by nearly 40%. Sousa warned that this is more likely to come back rather than chasing 50%.
“It’s about being ready to be proactive, not reactive,” he said. “The natural tendency is to squeeze the last bit of juice out of the fruit. But you won’t get off at the top or get on all the way down; be glad this happened.
“Fed liquidity has been a great gift to prop up the market, but we’ll see the markets forego it. I don’t think they’ll be as strong as they were. There is a high correlation between the stock market return and the amount of money that is fed into the system by various central banks. Needless to say, okay, if that stops it could be more difficult for the market. “
Withdrawal of central bank support isn’t the only thing advisors need to watch out for. Sousa believes that attention needs to be paid to asset allocation and the “antiquated” 60/40 split, which he pointed out is no longer enough. Sightline specializes in alternatives and advocates all-weather portfolios in various asset classes. Depending on each client’s liquidity needs, Sousa said alternatives between 10% and 50% might be appropriate.
From Mortgages, Private Debt, Senior Debt, Hedge Funds, and SPACs, there is an incredible amount of options. Choosing the right one for the customer is paramount and this is where a company like Sightline comes in.