These new SAAs were designed as optimal allocations for those investors who have a strong preference for investing primarily in US assets, in contrast to the globally oriented House View SAAs.
At the heart of successful investing is the ability to align a portfolio with an investor's preferences, objectives, and risk tolerance. Preferences and behavioral biases can play a significant role in an investor's ability to stay invested and stay on track for financial success.
Many investors want to invest in what is familiar to them. When turning on the news or looking at financials on our phones, US-centered indexes, like the S&P 500, are prominently displayed as a proxy for equity performance. We are also more exposed to US companies, products, and their advertisements. This familiarity is comforting when investing and can influence how we react to our investment performance, which may explain why, in almost every country, investors tend to have a "home bias," allocating more to homegrown companies in the global equity market capitalization. While we believe that portfolios should be positioned with a global mix of return drivers across geographies and styles, it can also be beneficial to align a portfolio to US investor preferences and US home biases, even if it potentially means having a less efficient portfolio.
From a behavioral perspective, the balancing act investors face relates to the general propensity of "loss aversion"—a tendency to experience about twice as much pain when underperforming, compared to the pleasure felt during periods of outperformance. If an investor is focused on comparing equity investments to the S&P 500, times of international equity underperformance, like what we experienced from 2010 through 2021, can result in adverse reactions that can increase the likelihood of selling out of an investment portfolio, even if international stocks delivered positive returns.
Therefore, even though we expect a US-focused SAA to underperform our global House View SAAs with slightly higher volatility, the psychological benefits of more familiarity in the investments, coupled with performing more in line with a US benchmark, can help some investors stay invested for long-term growth and increase their chances of financial success. We have heard this from both our clients and advisors; it is part of the reason we have launched the US-Focused SAAs in addition to the suite of House View SAAs.
Contact your financial advisor to evaluate if a US-focused strategy best aligns with your overall objectives, risk tolerance, preferences, and goals.
For more, see the full report: Introducing House View US-Focused Portfolios , 14 June, 2023.
Content is a product of the Chief Investment Office (CIO).
Main contributors: Daniel J. Scansaroli, Jason Draho, Christopher Buckley, Michael Gourd