How’m I Doin’?

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That line was made famous by New York City Mayor Ed Koch in the 1980s. We are just as curious so we are firm believers in having an appropriate benchmark – a standard of performance – for our investment strategy.

When we rolled out the strategy we established 60% S&P 500 / 40% Cash Equivalents as our benchmark. Now, nearly a year later we have changed the benchmark to just the S&P 500. The change became effective on June 1, 2016.

It’s not that the 60/40 benchmark was inappropriate. According to our old investment schedule, the strategy would have had a 60/40 allocation when we expected stocks to perform in line with their historical average. When we expected above average returns we allocated more to stocks; lower expectations resulted in reduced allocations to stocks. Over a market cycle our average allocation would have been about 60% stocks / 40% cash equivalents, so the 60/40 benchmark made sense based on the old investment schedule.

The change reflects the huge preference in the investment world for the S&P 500 as a benchmark. It is simpler and frankly offers investors more exposure to our strategy for every dollar invested.

Since our average “neutral” exposure rose from 60% stocks to 100% stocks, investors should expect a commensurate rise in the volatility of the strategy.

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