Portfolio Deconstruction: Identifying and Overcoming Home Bias
Home bias is one of the largest investment biases and biggest trends our Portfolio Construction Services Team sees in advisor portfolios. As advisors look to shift their focus abroad, learn how Adam Hetts, Head of Portfolio Construction Services, and his team deconstruct and construct portfolios to help you find the right mix of global equities and position your clients for long-term success.
Home bias is probably the biggest bias for any investor. It’s definitely the biggest trend that we see in advisors’ portfolios.
And frankly, it’s been a great bias to have. The last five years have been a historical run for simple portfolios: very straight forward, home biased models have generally outperformed portfolios that are globally diversified and built for long term success. What’s been changing over the last year or two is that a lot of advisors are moving toward more global
What’s been changing over the last year or two is that a lot of advisors are moving toward more global equity allocations. As we help our clients through projects like this, we engage in two primary ways:
portfolio deconstruction ‐ which is tearing apart portfolios in every conceivable way in order to help you better understand what you own and why it’s acted the way it has
and then portfolio construction, which is taking a forward looking view on how the portfolio can be structured for long term success.
As we go through the deconstruction and construction process with advisors, it’s clear that going global is not a straightforward process. It’s filled with the myths, misconceptions, and blind spots that we cover in our research:
- The myth that owning US multinationals makes a portfolio truly global
- The misconception that most global managers provide meaningful overseas exposure
- And the overseas equity blind spot in income portfolios
Going global can be a big shift in portfolios, and it highlights a tension in our industry: on one side, a lot of end clients see home biased portfolios outperforming and want their advisors to chase recent returns; on the other side, long term history tells us that may not be the best way to invest.
But we think this a healthy tension, and finding the right mix of global equity should help manage that tension and make for better long term results for your clients.
To read more insights from our experts,subscribe now.
The above video is for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. Janus Henderson does not guarantee that the information supplied is accurate, complete, or timely, nor does it make any warranties with regards to the results obtained from its use. It is not our intention to indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are inherent risks that individuals would need to consider. Investing involves risk, including the possible loss of principal and fluctuation of value.
Foreign securities are subject to additional risks including currency fluctuations, political and economic uncertainty, increased volatility, lower liquidity and differing financial and information reporting standards, all of which are magnified in emerging markets.
Diversification neither assures a profit nor eliminates the risk of experiencing investment losses.